This blog just hit a milestone usually celebrated only in relationships in your teens and early twenties: a six-month anniversary! Thank you for tuning in and providing all your wonderful feedback and comments that make blogging so fun. Please keep it coming!
Now for the juicy stuff: an update on our efforts to pay off massive debt. As readers who have been following along will know, I kicked off a goal back in December 2015 of eliminating $248,383 in debt, which consisted of the following loans:
- Student Loans: $201,270.70 (3.855% APR)
- Credit Card: $6,855.63 (3.25% APR)
- Car 1: $21,226.27 (2.9% APR)
- Car 2: $19,030.66 (0% APR)
Whew. That’s ugly to look at, even with the relatively low APRs. But we’ve been very proactive in trying to pay these loans off, have been lucky to get some windfall money, and have been doing side hustles to bring in even more cash to throw at these nasties. Here’s how things stand now:
- Student Loans: $189,021.26 (4.075% APR) (has variable APR, and it went up once by 0.22% thanks to the Fed)
Credit Card: $6,855.63 (3.25% APR)
- Car 1: $18,591.17 (2.9% APR)
- Car 2: $16,548.40 (0% APR)
Grand total: $224,161.43. We knocked out the credit card debt completely with the windfall, freeing up about $125/month in cash flow. It felt damn good getting rid of that anchor. And we reduced our overall principal balances by $24,221.83, cutting into 9.75% of the loan balances. (Total we actually paid: $28,274.15—interest sucks.) That’s about 0.25% behind my goal of getting to 10% by the end of June, but with some significant side hustle income, I believe we are actually still on track to meet our target of paying off 20% of these debts by the end of the year. As I wrote when I set out, I had no idea how we were even going to get close to our goal, and here we are basically right on track. Amazing.
I’ve also really started taking advantage of Personal Capital to keep track of our progress. Here’s a beautiful graph of the cliff our credit card debt fell off when we paid it in full:
The little blips in the later months are some routine spending we route through our Costco rewards credit card, which we pay in full every month. And here’s how it tracks our other loan balances:
My very meager retirement portfolio (based on The Simple Path to Wealth) is also doing quite well for the year, which is nice to see as getting completely out of debt starts to seem more achievable:
The dip in the first few months is when I decided to roll over an old IRA account from Betterment and put it in Vanguard, which does not require monthly contributions and has a rock bottom expense ratio of 0.05%. (That’s 1/3 to 1/7 of Betterment’s expenses, depending on your eligibility.) Go Curry Cracker convinced me, and I’ve been pleased with the decision since. It also lines up neatly with JL Collins’s view, and now my own.
(If you’d like to take advantage of Personal Capital’s free service to make better money decisions based on feedback previously available only to millionaires—and speed yours truly to debt freedom—join here for free.)
Part of wrestling with this debt has been learning to roll with the punches. About the time we got the windfall income, my eldest daughter was truly excelling in music at school (even performing with students several grades ahead), and her teachers were really pushing for her to have some private lessons so she could improve even more.
Because we eliminated the credit card debt, we were able to entirely fund those private lessons with the now free cash flow. Obviously, I would have liked to pile that onto our snowball of repayments and see the results with the Debt Freedom Calculator, but helping my daughter grow when she needed it took priority this time. The lessons did, however, take a break for the summer, so at least for a couple months now we’ve been able to throw that money at the loans.
Another hiccup was the death of the chlorinator for my salt water pool. I knew this thing was on its last leg as it was 4 years old and extremely poorly maintained prior to our ownership of the house. I’d managed to resuscitate it and get it to go through another season. But I was not at all surprised when it finally kicked the bucket, threatening to turn our pool green in fast order in the Phoenix summer heat.
It seemed pretty complicated at first to replace the system, involving quite a bit of wiring and PVC plumbing to install an expensive system. So I got a quote from the pool store I frequent where I get my pool water tested for free: $1497 for them to buy the system and install it for me. That gave me a nice little heart attack, so I started looking into more about how to replace the system to see if it was actually something I could do myself. I’ve done some PVC plumbing in the past so I thought I could probably figure that out, but the wiring scared me. I found a manual online and realized it was actually incredibly simple. Not surprising—they make this simple so people without engineering degrees can install it for the pool store, right? That gave me a big boost of confidence. And then I checked the price on Amazon to buy the system myself: only $890 with tax! I decided it was worth trying to do myself.
It was even easier than I thought it would be. Here are a few pictures of the process:
I got it up and running successfully and only spent about $30 on materials, for a total cost of $920. Total savings by doing it myself: $577. I figure it probably took me about 4 hours of actual labor (subtracting the time I waited for PVC glue to dry), which works out to paying myself $144.25/hour for learning about a new system and knowing it was installed correctly. Not bad!
Unfortunately, however, paying to get the system fixed and keeping the kids swimming required not paying extra toward my student loans at the end of June. But unlike most Americans, apparently, we were able to cover this $1000 emergency out of our normal cash flow. Which got me thinking about how valuable it is to have flexibility in cash flow. Obviously paying off the highest interest rate loans first is the mathematically best option (as proven by the Debt Freedom Calculator), but it increases risk to handle the unforeseen by keeping the required level of debt payments high for the longest period of time. Although not specifically quantifiable (at least, not by me), that increased risk reduces the value of doing the mathematically most optimal choice.
So, I’ve decided to get rid of the car debts next to free up about $900/month in cash flow, further enabling us to handle these kinds of problems. The hope is to get these suckers gone in about a year, which will be more than two years sooner than required by our 5-year loan agreements. I understand this means my student loan balances will decrease more slowly. But having an extra chunk of money each month to handle unforeseen emergencies in stride will make me feel more comfortable, and I think ultimately reduce my overall financial risk significantly. And get this: it only costs me approximately $67.87 to do so ($26,263.81 in interest with the highest interest rate loans paid first versus $26,331.68 to pay off the smallest balances first):
The graph above shows our debt freedom date based on the amount of money we’re currently able to throw at these loans. I’m hoping, however, that our income will increase once Mrs. Mortimer is working full time again, which she should be by next year at the latest, and that I may get a few bumps from salary/bonus. So, although we’re currently a year behind schedule overall, I’m pretty optimistic about our ability to cut this schedule down to meet the goal of December 31, 2020. All in all, not a bad first half of the year.
What about you? How are your finances shaking out this year?