Most of us dream of being debt free and retirement, am I right?
In our society we are conditioned to pay for our mortgage over 30 years (no matter what age we start it) and most Americans have 5-6 year auto loans. Then all the credit card offers which get us into credit card debt, student loans, and for us add in medical debts too. Did you know that over 80% of Americans are in debt, and many of us don't know how to get out of it even though we have the best intentions too.
So why do we have all this debt? One of the biggest reason is we live in a world where our every move is documented on social media and it's easy for public image to become the most important thing, regardless of your actual financial status. The problem is, rarely are you seeing the actual life people show to the outside world. Are those people you admire living in a gorgeous home, traveling around the world, but also drowning in debt?
Mindset shift is the first thing that needs to happen if you truly want to work toward financial freedom.
Let me just say we have tried so many different debt tool solutions. We have done the debt snowball and baby steps, we have lived paycheck to paycheck for a long time, and in the deepest part of Mia's health crisis we even ended up in bankruptcy. There was no light at the end of any tunnel for us. It was becoming uglier and uglier and our mindset at that time was just to make it each week.
Throughout the years we have been very vocal about Mia's health and struggles and gained a large following and met many amazing people along the way. You never know who just might be watching your journey and change that trajectory at anytime.
In July of 2020, just that happened for us. A friend reached out that we hadn't talked to since about 2013. He continued to tell me how Mia's story affected him personally and how it made him look at things in life differently including what he wanted for a career. He asked if I wanted to get together in person and catch up on all the things that had been going on in both our lives, as he kept up with us some on social media. So we planned to meet in August.
Little did we know, that meeting would start the chase to financial freedom for our family. Being completely transparent, on that date, we were $609,362 in debt. We had just built our home and moved in 2 months prior. Our home that we had owned since 2009 in our home town that was sold on contract ended up not selling and that home needed $30,000 in repairs from it being a rental for 6 years before it could be sold, and we were living paycheck to paycheck again. Paying 2 sets of house payments and utilities wasn't going to be sustainable long, but we knew if we could just make it through, the equity in that original home would make it worth it.
The August meeting came and during the visit this friend asked if our goals were still what they were back in 2013...... of course we always wanted to be debt free. We dove into deep conversations and this friend shared resources of how he had paid off his home in less than 3 years with no additional income and offered to walk us through the process to see if it's something that could work for us too.
Needless to say, ours was super complicated and many hours were spent building spreadsheets, looking up information, and formulating the plan. The plan has led us do a debt free date of October 2027 (which is the month Mia turns 18). This actually could happen sooner, but being conservative on the spreadsheets was something I wanted to be sure we were doing.
Now we are one year into the process, and with no additional income our debt total is down 48%! Yes, almost cut in half in just one year!
So how did we do it?
We are attacking the items on the list by looking at what would make the biggest difference in our monthly cash flow vs looking at which balance is the smallest. The strategy is to make the most monthly impact.
One piece to the larger part of the strategy was to establish a HELOC (home equity line of credit), so for our family, our mortgage is in Craig's name and auto loans are in my name. So we were also able to look at the list of debts and choose the things that would make the biggest impact to Craig's credit score. We watch our credit scores using the free version of Credit Karma.
The more cash flow you can create monthly, the more you can pay towards your mortgage which is going to save you tons of interest!
So far, we used that cash flow to pay off as many debts as possible. As of today, we only owe for our home, one car loan, one leased car, and one credit card left that is 0% interest until summer of 2022.
Now we will begin using a HELOC as a checking account. All our income will go directly into paying the HELOC which is calculated using simple interest instead of amortized interest. We will then also pull from the HELOC anytime a payment is due. Our monthly costs of living such as utility bills, groceries, fuel, or any personal needs will all be paid using a credit card that gets us cash back. The credit card is paid in full each month. This stretches out the time to pay for all of those needs which increases the cash flow. There also will be no accrued interest on that credit card.
The cash back can be used toward the balance owed, but our family decided to use the gift card option. So each month we get over $100 in gift cards for stores of our choice. This allows me to purchase things such as home decor, clothing, toys for Mia, etc.
One of the things that made all the other debt payoff plans not sustainable long term is that they always made you feel like you have to give everything up to make a difference in your debt. After living on this plan for a year, I can tell you I don't feel this way using this strategy. Both Craig and I set aside a specific dollar amount each month that we can spend how we choose. It's not always a lot, but I know if I want something larger, I can just save mine for a few months.
With the current debts we have left, we have chosen not to pay off our vehicles early. Craig's car has an interest rate of 3.9% so the interest cost for the life of the loan is only $4,987.16. So long term, we will save more money by paying extra on our mortgage.
Seeing the trajectory of what we have been able to accomplish in the last year has ignited a new passion for me. I want to help others chase the same financial freedom we are seeing, I am not a financial coach, but am happy to share with you on a personal level. If you are reading this and would like to set up a consultation to see if it could work for you, just send me a quick email to firstname.lastname@example.org
.. I would be honored to help your financial legacy begin.