Tuesday, April 27, 2010

The Feeling of Being Debt Free

The Simple Life in France posted Where Would You be Without Debt? and got me thinking.  Debt freedom has to feel amazing. In our case, it would open up a bunch of options and really boost our early retirement goal.

Right now, we have a total of two debts:

1.  Car Loan - $9,900 at 4.6%
2.  Mortgage - $72,700 at 5.375%

I am currently concentrating on paying off the car loan as soon as humanly possible.  My husband has even taken to this battle since he found out we wasted almost $700 on interest alone for the car in 2009.  If we successfully pay it off by August 2011 as planned, that will be at least an extra $500 a month to "play" with since the payment is $330 and we've been contributing extra that comes our way.

We might use that extra money to tackle the rest of the mortgage.  We are currently on schedule to have that paid off by December 2017, but I think it would be possible to move that up to 2015-2016 without hurting too much.

My only hesitation in any of this debt repayment is that it will be very difficult for us to open a second Roth IRA this year if we're pretty much channeling that money to the car loan instead.  We are going to try to do both, but I won't really know if that's on track until August or September 2010. 

Have I mentioned that I have no patience?  If not, I am not a patient person.  Ever.  Waiting sucks.

Anyway, that's where we stand.  Debt freedom is less than 7 years away.  I think it will feel like being surrounded by free candy and chocolate...I'd be oh-so-happy and would enjoy figuring out where to start.

How do you stand?  What's your debt freedom date?  How do you think it will feel?


  1. Wow, just knowing that you will be debt free in 7 years must be such a great feeling. I think that financial freedom kicks in as soon as you know exactly when your debt will be paid off. Congratulations.

  2. Amortization charts are great, aren't they!? It quickly lists exactly how much interest you paid on a loan! It sounds like you guys are way ahead on your finances, great work. As for paying off your car or funding your Roth IRA, you're in such good shape I think I'd focus on the car loan, then max out that IRA next year.

  3. I think my debt freedom date is a little farther out. After I buy the new house next year, it will probably be between 15-18 years before it is paid off.

    I can't wait for that day to happen. I think initially, the extra money will go to help pay for child #2's college. After that though, who knows what my wife and I will spend it on. Luckily, I'm patient. My wife, not so much.

  4. BFS, we have the 290.5K left on the mortgage. By the end of 2020, I hope to have it paid off. Then we can concentrate on putting more than we have down for our kids' college.

  5. Just wanted to add that I really like the new banner!

  6. Seven years to being debt free sounds great! I know a lot of people who are nowhere close to that.

    And it's funny, of course, I understand how interest works etc, but the $700 on interest remark kind of stung. I can see how it motivated your husband.

  7. I think it will be amazing, and I can't wait to find out for sure. We are aiming for the end of 2012 as our debt-free date. I'm not quite sure how that's going to happen yet, but I have faith.

  8. I paid off both the car and the mortgage a few years ago, and it felt wonderful! Then I began to replace the almost 20-year-old appliances (washer and dryer, furnace and AC) and a mattress and box spring of similar vintage. I'm not done, but it's nice to be able to do all this as I'm contemplating retiring in a couple of years.

  9. Debt Hawk, I don't feel stressed but I don't think I'll feel free either for 7 more years, lol.

  10. Little House, I love amortization tables. I think I've spent 6-8 hours coming up with all kinds of scenarios of prepayment. :-)

  11. MikeS, I think you are doing great...15-18 years doesn't sound so bad in the context of a great house and great kids...

  12. Oh, and MikeS, patience is weird...ask your wife. :-)

  13. Julie, all of you parents helping with college for the kids is just really cool.

    Oh, and thanks about the banner! Mrs. Money at the Ultimate Money Blog created it for next-to-nothing...I love it too!

  14. Simple in France, yeah the interest snuck up on me too. I was so proud of the 4.6% interest rate a seemed to ignore the real money involved...

  15. Carol, that's where I'm aiming! Thanks for chiming in and enjoy your new mattress.

  16. I am debt-free...and it does feel good. It was a great comfort during the financial meltdown as we watched our savings/investments evaporate into thin air. We saved like crazy so that we could help our kids graduate from college debt-free. As it happened, they selected low-cost (free) options, so we feel somewhat serene as we wait--fingers crossed--for our retirement investments to grow back.

    I'm wondering--if you don't do a long form, would it be better to pay off your house before your car (since your mortgage is at the higher rate)?

  17. Everytime I thought about the amount of awesome stuff I could be buying with interest money ... that's really what had me motivated to pay off my family's debt so fast. It was killing me that I had to pay it off, but the frustration was worst when I considered the money being thrown away on interest. That's just insulting. :)

    It felt like it took forever to pay everything down, but I think it was more like 7 years or so as well.

  18. frugalscholar, you bring up a good point.

    We're paying off the house faster too ($900 a month instead of the necessary $740). The car is just more annoying to me since it's depreciating and my house surprisingly isn't...let's just say that I think the car is a more stupid debt. I also like the mental part of being able to be down to only one debt by 2011 as opposed to 2013.

    My husband added that you also have more options on your car insurance if you own it outright...you can even lower it down to liability only if you wanted to (even though we would never do that on his car since he drives 75% more than me all over Houston during rush hour as a sports official).

  19. Revanche, I'm sure you hear this all the time, but you are a strong woman and have my full respect.

    For anyone who hasn't read the About section on A Gai Shan Life (www.agaishanlife.blogspot.com), take a look. You'll see why I'm impressed.

    And yes, the interest just seems so wasteful...especially for something that becomes worth so little so quickly...

  20. Mine debt freedom date is in two years ... or less. It felt great to pay off my first car. It felt great to pay off my student loans. It feels great to pay cash for cars now and to get more education from library books. Now all I've got is the house.

    I bought my house so long ago, and it was so affordable, and I share with a roommate, so that will only free up $250 extra per month. That extra money will go toward retirement savings. Still it will be nice that one less entity (my mortgage holder) will have control over my life.


    I want to say that once your car is ten years old or so, collision insurance is just dumb. The slightest ding and your insurance company will claim that your car is totalled because fixing it will cost more than the car is worth. And then your rates get jacked up. I get cheap, old cars (of reliable models) partly so I don't have to deal with collision insurance.


    Is it wrong that I make my own amortization tables on a spreadsheet? Then you can customize them for irregular extra payments.

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  22. Couple of thoughts. Could you make bi-weekly payments on the mortgage to speed up paying that off a little faster with less pain?

    Whereas I know that you can possible 'make more' money by investing in that Roth IRA instead of paying off the car, having 0 debt is a wonderful thing. We just have our home to pay off, and that will be in 7 years. I put extra on the house payment every month to move it up even more, even though my interest rate is 4.75 percent. Some would say I should invest that extra money instead, but I cannot put a price on security.

  23. Debbie M, I totally agree about comp and collision coverage. I usually carry liability only on any car worth less than $5000 (like my current one). I figure if it's wrecked, I'll use the car maintenance fund to buy another car or as a downpayment.

    Would you mind emailing me an Excel amortization table that you modified to take into account special circumstances? I haven't really figured out how to do that yet and would love to see an example!

  24. Everyday Tips, I've never run the numbers on two $450 payments instead of one $900 payment...would it be worth the hassle of having to do it manually?

    Yep, monetary logic be darned, I hate debt.

  25. Let me just give you instructions on how to make an amortization table. This looks long, but that's to make it make sense.

    First, start with a standard amortization table. First I have a column with a date. This is actually the hardest part--I don't know how to add one month quickly, so I just type in a date. And even though I just care about the month and year, I also put in the day because otherwise things go wacko.

    Okay, then I make a column to keep track of the principal. Just pick a date where you know what the principal is (say, 4/1/2010) and type that in. For example, I might put 60,000 in cell B2. More in a minute about how to calculate this for future months.

    Then I add a column I call principal payment. You're going to need to know the part of your payment that is P&I (principal and interest)--do not include the parts for taxes and insurance.

    You will also need to know your interest rate.

    For the month after the month with known principal (in this example, 5/1/2010), put in the following equation:
    =[P&I] - ([cell with known principal]*[interest rate]/120
    For example, on my house, my P&I is $505.73 and my interest rate is 6.625%. Assuming I entered my known remaining principal into the square labeled B2, my equation for cell C3 would look like this:

    For anyone afraid of math, here's what it means:
    6.625% turned into a decimal is .06625 (multiply the % by 100).
    Then to find the amount of interest you have to pay per month, divide your annual interest rate by 12 (0.06625/12)
    Then to figure out the actual dollar amount of interest you owe for a month, multiply that number by the remaining principal for the previous month (B2*0.06625/12)
    Then to figure out the amount of the P&I that is left to go toward principal, subtract the interest from the P&I (505.73-(B2*0.06625/12))
    Then, to tell Excel that you want it to do the math for you, stick an equals sign at the beginning.

    Now back to the principal column. For the second month, enter this:
    =[cell with previous month's principal] - [cell with this month's principal payment]. Assuming again that your known principal went into box B2 and that your principal paid went into box C3, your equation would look like this:

    Now select the squares from that last row (in this example, B3, C3, and if you know how to make this work for months, A2) and drag the bottom right corner down until you've covered the number of months you need before your principal column goes negative.

    Then, I like to make another column for my age and just type in what my age will be for each January (when my birthday is).

    There you go--a nice, normal amortization table. Double-check that it matches the one you got from your bank if want and/or that it takes the same amount of time to pay off as you expect.

    Now, to personalize the table, just add however much extra principal you pay to the principal paid column (in this example, column C).

    For this example, if in May you scrape together an extra $100, then you would add +100 to the end of the equation in the C3 cell:
    Then when you press enter, all the equations in your principal column will be recalculated, and they should be lower.

    If you want to see what would happen if you could add $100 every month, then add 100 for one month, press enter so that sticks, then drag the right corner of that cell down to the end.

    "Undo" is your friend. You can try things and then undo them or mess around all you want and then close it without saving. But every time you really do add an extra principal payment, then add that in and save it.


  26. Arg, writing about math. Typo city!

    Above, by "last row" I meant B3, C3, and A3 (not ... and A2!).

    And when you add your payments, you use a plus sign of course:
    (not ... -100!)

  27. Debbie M, I actually understood all of that! Yay! I'll try this out this weekend...it would be nice to know how extra payments will speed up paying off this car loan and the mortgage starting next year. Thank you so much!

  28. I've been debt free for a couple of years. Feels great. My biggest problem now is where to invest, and when will I have enough to retire or move on to a second career doing something I'm passionate about.

  29. You never really know if you understand it until you try it. Did it work? Any fun?

  30. Debbie M, the amortization table worked great! That’s how we figured out how we’ll pay down the car loan by the end of the year. Thanks to you and MikeS for the help (he helped me as well)!