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The Gift of Debt – Motivation Through the Murder of Mortgages

The Gift of Debt

You know I hate debt.  Heck, we paid off both of our cars less than 2 years into our car loans.  Now we save cash for future cars.  We paid off the mortgage of our first home, now our rental property, in 6 years.  Some of you have even pointed out that I could have used that $70,o00 in principal payments on something that could have earned me more than the 4.5% interest that we saved.  I argued that owning a home outright is a sort of insurance policy for us self-employed people.

BUT, today I want to look at debt in a slightly different light than usual.  I want to see any of the debt we’ve ever had as a gift…what did it lead to overall?

Our Debt History

Mr. BFS and I are 30 years old.  The debts that we’ve had so far have been a family college loan, 2 car loans, and 2 mortgages in our lives so far.  Here is our debt history:

  • The $8000 family college loan was forgiven a few months after we started making payments when we graduated in 2005.
  • The first car loan of $11,000 came along in 2005 too.  It spurred us to live like college kids even when we started making decent money since we wanted to pay off the 6.1% car quickly.  In early 2007, our Chevy Aveo was in my name.
  • Then we took on a $91,200 mortgage in mid-2007.  We lived on less than we could have in order to make principal payments from the very beginning.
  • We splurged on a better family/hobby job vehicle for Mr. BFS in 2008, so we got a $20,000 car loan for the Prius at 4.1%.  We again tightened our belts and paid off that car loan in 2010.
  • In late 2012, we bought our current home and signed up for another $208,000 of mortgage debt.
  • In early 2013, we paid off the first mortgage to give ourselves some monthly breathing room in regards to cash flow.

So our “only” current debt is the $204,000 mortgage left on our current home.  I italicized “only” because $204,000 is a lot of debt in my eyes.  I don’t care if it’s considered “good” debt.  It’s money that I owe someone, and my home isn’t really my home completely until that balance is zero.  And the 4% interest, which is about $600 a month, is truly annoying too.

Slaughtering Debt Motivates Us

Looking at our last 8 years out of college, it is obvious that our debts actually caused us to live on less consciously.  We’ve definitely embraced some lifestyle inflation, but not to the point that we couldn’t save for our future or tackle current debt.  We simply funnel extra money to our priorities, and debt repayment is a huge priority for us.  So in that way, debt is actually one of the main motivating factors for the beneficial financial decisions that we’ve made up to this point.  Not too shabby.

Do I appreciate debt anymore now than before?  Nope.  But I will say that we don’t regret any of our debts, and they have motivated us to stay on track to pay them off and get ready for our future.

How do you see your debt?

This post is part of The Gift of Debt Series an eight-day, multi-blogger extravaganza hosted by The Fiscal Flamingo. The series is designed to give you the permission to kick up your heels, embrace your debt with glee, and look forward to finding the gold at the end of the rainbow.  Follow along in the series as we tell the story of our gift and encourage you to find yours.

Annoying Letter Means WE PAID OFF OUR FIRST MORTGAGE!!!

On April 2, 2013 I wired $22,200 to Chase to pay off the mortgage on our first home – what is now our rent house.  I held off on writing the happy post about it since I wanted to receive something official that would confirm we indeed own our first home 100%.  Well, here is a letter we received yesterday:

We are writing to tell you about a change in your status in the Mortgage Cash Back Program.

We want to let you know that you are no longer enrolled in the program because your mortgage has been paid off prior to maturity.  You may be able to enroll in the program in the future if you decide to refinance your mortgage with Chase.

Note:  Any rewards that you may have earned before cancellation of the program have been forfeited.

If you have any questions, please call us at one of the telephone numbers listed below.

So I forfeited $48 in cash back to save $60 in interest for the rest of April.  I’m okay with that.  :-D

WE PAID OFF A MORTGAGE!!!

So even though we don’t have a deed in hand yet, I am super happy to say that we have officially PAID OFF the mortgage on our first home purchase ever!!!  We officially own a 1750 square foot, 3 bedroom, 2 1/2 bath home outright!!!  Woot!!!  And the $505 mortgage payment that was usually drafted from our account the 9th of every month didn’t happen!  Yay to an extra $500 a month!!!

Okay, I’ll lay off the exclamation points.  I’m just super happy.  :-)

Our Rent House is now 100% Ours!!!

We own this baby outright!!! Yay!!!

 

The Process

Just so you know, I was a little worried about the process of paying off the mortgage since I hadn’t done it before.  It ended up being pretty easy:

  1. I called the number I found online to use an automated system to receive a mailed payoff quote.
  2. I moved the $22,200 over from CapitalOne 360 to Chase (our brick and mortar bank and the one who had this mortgage).
  3. Once I received the quote a week later, I wired the payoff amount along with all of the info they asked me to include in the “Memo” section of the wire.
  4. I then saw that they charged me a $25 wiring fee (I was too excited to pay attention to that little note before).
  5. I emailed them asking them to waive the fee since I was a long-time customer and the money went from them to them.
  6. They waived the fee.

And there you have it – 3 steps to pay off a mortgage and 6 to do it and get a fee waived, lol.  ;-)

What This Means Now

Now we own one home outright that we use for rental income.  We still have a $205,000 mortgage left on our current home, so we are definitely not completely debt free yet, but that is the last debt left.  And we really love our current home and being landlords, so we are not regretting our decision to move last year at all.  Overall, we’re exuberant.

Based on our last budget update, we needed about $8000 a month for just bills plus taxes.  Now that is at $7500.  Still way too high in my opinion, but $500 a month is $6000 a year.  I’ll take it.  :-)

Retirement

This also means that real estate has truly become a part of our current income and our future retirement plans.  Even taking into account annual property taxes, annual home insurance, and all repairs/maintenance items, we should be netting about $10,000 a year from our rent house.  We haven’t had any super expensive repairs yet, but I am budgeting high for those since all appliances will break eventually and probably all at once since that is how it always happens, right?

The rest of our retirement plans are sort of up in the air.  We max out Roth IRA’s every year and that’s about it right now.  So now that the mortgage is paid off, we need to look into all of our options and make a plan.  We know we want to invest in the stock market and are leaning towards opening a SEP IRA since I can’t contribute to my old 401k anymore.  We could even look into more rental property.

When we hit our golden years, we’ll need to look at how we will take distributions.  Really though, the more immediate decisions need to be figured out first.  We will probably start small with SEP IRA contributions and more stock market investments.  It’ll take a year or two before we will probably look any further into real estate…we’ll see…

Mortgage Payoff Race

Finally, I am happy to say, we also won the mortgage payoff race!  Jason from Live Real, Now and I made a bet at the Financial Blogger Conference last year about who would pay off their mortgage first.  Sorry Jason, but you will be expected to visit “hell” (as you put it) sometime soon.  I’ll provide the sunscreen.  :-)  And don’t worry, we have air conditioning.  This may have worked out for the best since I forgot you owned a cat and I would have had asthma attacks the whole time I was in the frozen tundra that you call home, LOL.

Are you debt free or working on it?  Own a home outright?  On track to?  What do you think?

Mortgage Payoff Race Update – Changing Priorities?

Last September, Jason from Live Real, Now and I made a bet.  We are racing to see who can pay off a mortgage first.

Our Rent House

At the time of the bet, Mr. BFS and I had about $24,500 left on the mortgage on our rental house.  Jason had a similar amount left on his home loan.  The rules on my end were that I needed to pay for our closing costs for the new house, save up $20,000 of padding again, and then pay off the first mortgage without touching any of that padding.  Jason is going to pay off a vehicle loan and then attack his.  Whoever loses will visit the other person’s place…me in “hell” or him in “the frozen arctic”.  :-)

Mortgage Payoff Race Update

Well, we saved up the $20,000 in padding by the end of last October.  Yay!  But things sort of slowed down from there.  With two house payments and two sets of property taxes, our cost of living has nearly doubled.  You can see our budget here – with taxes, we need to bring in $8000 a month.  We bring in way more rental income too ($2300 per month), but generally, our self employment income has settled at just above what we need to pay for taxes, basic bills, very basic savings, and our little lifestyle luxuries like lawn care.  Basically, we only save the rental income for the mortgage payoff.

From October 2012 to now, we have set aside $15,000 in a savings account for the mortgage payoff.  We have $22,000 left to pay.  If things continue as they are now, we should be able to make our last payment ever sometime between August and October of this year.  But here is the deal…

Changing Priorities

Life’s priorities don’t just stay the same forever, right?  Well, ours don’t at least.  Last year, taking on a huge, new mortgage made us want to pay off the remaining part of our old one SO badly.  Now we have tasted rental income and wonder if we rather refinance our huge mortgage and start saving for another rental property.  Or invest more in the stock market.  Or just keep cash on hand for a new-to-us vehicle since mine has been slowly dying for the last 8 years since the Chevy Aveo sucks and hubby’s Toyota Prius has hit 110,000 miles and we don’t know what to expect.  Overall, we wonder if we should use the $20,000+ in cash that we will have saved up within the next few months to pay off a 4.5% mortgage.

I do hate debt.  I would love to be completely mortgage-free within the next 10 years or less.  But I also would love to have some more rental property since it makes so much sense in our area.  $125,000-$150,000 homes that rent for $500 per month or more than what their mortgages and property taxes cost is just hard to pass up.  We might try to do both since I am a fan of having your cake and eating it too (what’s the point otherwise, right?) BUT I wanted to throw it out there that we may go a different way.  Nothing is decided yet, we are still saving, and we are on track…just don’t know if we will stay on this specific track all the way through…

Do your goals change like this too?  How often do you think your priorities seem to switch?  What do you think about our situation?

I Don’t Believe in “Good Debt”

If you’ve been reading since I started in February 2010, then sorry for repeating myself a little.  I get asked pretty regularly via email about my take on debt and credit cards.  Today, I’ll tackle the debt one, lol.

My View of Debt

I simply don’t think of any debt as good debt.  This doesn’t mean that I treat all debt the same, but I don’t see any of it as a good thing.  For example, the big debts seem to be student loans, credit cards, mortgages, personal loans, and car loans right?  Generally credit cards are called “bad debt”, student loans and mortgages are referred to as “good debt”, and car loans seem to depend on the person talking.

Sorry, but I think that they all suck…credit card debt just sucks the most because it usually has higher interest rates than the others.  That is how I judge debt…it all sucks, and the higher the interest rate, the more it sucks.  :-)

Tackling Our Debt

Does this mean that I flog myself daily for having two mortgages?  No.  But it does mean that I am actively trying to kill both of those loans.  We have the rent house mortgage down to $23,000 and our new home loan is around $206,000.  I hate them both.  And I hate the rent house one more simply since it is at 4.5% while the other one is at 4%.

We are aiming to pay off the rent house mortgage by the end of this year, and then my own personal Eye of Sauron will turn onto our current home loan (yep, there’s some love for Lord of the Rings fans…).  ;-)  Realistically, we may not be able to pay off the big mortgage until sometime between 2022 and 2027, but I will probably try to find even more extra money to send that way since all loans make me feel icky.  I don’t like owing anybody money and I much rather own my stuff outright than know it’s not really mine yet.  That’s the control freak in me.

Won’t I Lose Better Opportunities?

This is usually the point that someone will bring up the lost opportunity cost with the money I use to pay off relatively low-interest debts.

We do invest in other stuff too.  Our Roth IRA’s are invested in several different ways, we have a Scottrade account that is invested in a handful of different high dividend yield stocks, and we have rental income.  Could my debt-paying money make more if we threw that into the mix as well?  Maybe, but a guaranteed 4% return makes me happier than a 0-12% maybe.

Would I take out a 3% interest loan and invest the money in a guaranteed 4% interest return if I could?  Yep.  But I have yet to find 100% guaranteed returns higher than an interest rate of a loan I could take.  In short, yes, there is always an exception, but I haven’t found it in the real world yet.

Do I sometimes see loans as a necessary evil?  Yep.  If you really need a car to get to and from work, and you don’t have the means to buy a car outright, then you will most likely look into a loan option.  I am not judging – we’ve done it twice ourselves.  But my view is that a necessary loan doesn’t make it suck any less.  It doesn’t make it “good debt”.

Please take this post as it is intended – my personal view on the subject of debt.  I totally am not judging anyone else’s views at all.  Speaking of which, do you think there’s good debt?  Did I miss a point?  Feel free to share.  :-)

How to Improve Your Credit Score in Six Easy Steps

The following is a guest post from Dominique Brown, a financial planner, landord, personal finance blogger and video blogger. He is the owner of YourFinancesSimplified.com where he talks about everything from being a new father to his worst financial mistakes. He is also the owner of InsiderRealEstateTips.com where he talks about real estate exclusively. The Huffington Post and  H&R Block. You can find him either on Twitter, Facebook, Youtube or Instagram.

I don’t have to tell you that having a bad credit score is a bad thing. However, what many people fail to realize is how many things are affected by your credit score. We all know how you need good credit to get into real estate, but did you know you could be turned down for a job because of a your crappy score? That to me means that your credit score should be a high priority. I don’t care if you are debt adverse or a debt lover.. credit matters.

Unfortunately, there isn’t any magic way to increase your credit score. However, you can improve your score within few months by carefully applying several strategies together, if your credit report doesn’t have some serious black marks such as foreclosure or bankruptcy.

First, you should know where you stand right now. Though you get a free credit report every year, you have to shell out some money to see your FICO scores. Go to myfico.com to purchase your Equifax and TransUnion scores. Experian no longer sells its FICO score to consumers, but it does sell your score to lenders and banks.

Now follow these tips to improve your credit score:

1        Review Your Credit Report

If you haven’t done it already, review your credit report for errors. Make sure that the data entered is accurate and correct. Sometimes people see late payments incorrectly listed. If you notice any errors, dispute them with the reporting agency and the credit bureau. I go into a bit more detail in this video on identify credit report errors.

2        Pay Your Bills on Time

Late payments affect your credit score in a big way. If you are unorganized or used to making late payments, set your bills up for automatic withdrawal from your bank account. If you are 30 days past due, lenders report the delinquency to credit bureaus and this blemish remains on your credit report for seven years. If you have to be late.. be 29 days late :-)

Certain banks will remind you through email or text message when the payment is due. If you have missed any payments in the past, catch up, and don’t make that mistake again. The longer you pay the bills on time after the previous mistake, the better your FICO score will be. Also, if you happen to be late. Call the lender immediately and ask for more time and that they don’t report it! You don’t get dinged for asking.

3        Pay Your Credit Card Balances First

You know what? Revolving debts (such as credit cards) seem to have more profound effects on your score than installment loans (mortgages). The reason being, typically people are above the magical 20% credit utilization amount on their credit card. So, you get a nice boost by paying your credit cards down and getting within acceptable credit utilization limits.

4        Don’t Cancel Unused Credit Cards

If you think you can improve your credit score by canceling one or more of your unused credit cards, change that thinking. It actually lowers your score. Yup.. who whould have thought that. Why? Well when you cancel your credit cards you’re cutting your total limit, which increases total credit utilization. You’re also shortening length of total credit history, and you will erase all that good payment history since a closed credit card account will not remain on your credit report after 7 years.

5        Do Not Max Out Your Credit Cards

The rule of thumb is to keep the credit card balances below 20 percent of the credit limit. Try to spend no more than $6,000 on a $30,000 line. If you need to spend more, simply use other cards to reduce the load on any single card, or do what I highly recommend and pay in full. If the creditors report a heavy balance on any of your credit cards, it will affect your score.

It is better to have two credit cards with balances below 20 percent each, than to have only one card that you max out every month.

6        Do Your Loan Shopping in a Limited Time Span

A number of credit inquiries (for home loan, or a car, etc.) can pull your credit score down. But when you do it within a short time, the system doesn’t treat it unfavorably. So, whenever you need to shop for a loan, do it within a maximum of two week period.

So there you have it. Quick and easy tips for improving your credit. Follow these steps and your credit score will improve. Have you ever taken steps to raise your credit score? What did you do?

Back on the Mortgage Payoff Train

Moving really has taken up most of my mind for the last couple of months.  But now we are pretty settled and I feel myself getting back to normal.  First order of business, kicking Jason’s booty with our mortgage payoff race.

Our Bet / Mortgage Payoff Race

Jason from Live Real, Now and I decided to make a bet at the last Financial Blogger Conference.  We are racing to see who can pay off a mortgage first.  Mr. BFS and I had about $24,500 left on the mortgage on our rental house (it is so cool to be able to call it that…).  Jason had a similar amount left on his home loan.  The rules on my end were that I needed to pay for our closing costs for the new house, save up $20,000 of padding again, and then pay off the first mortgage without touching any of that padding.  Whoever loses has to be the one to visit the other person’s place…and I rather not pay to visit the arctic

Back in the Game

Closing took FOREVER.  Then unpacking took up my mind.  But Jason, I didn’t forget about you.  ;-)  One of the only good things about this “3 month house build” taking 6 freaking months was that we had a bit of extra time to save.  So, we waved adios to nearly $50,000 on the day we closed.  Then we doled out nearly $4000 in moving costs, blinds, sodding, etc.

But thanks to that extra time, last week I was able to bring back up our padding accounts to $20,000 (barely).  So steps 1 (closing) and 2 ($20,000) are all wrapped up.  Now we just have to kill that first loan.  We actually aren’t bringing in the crazy big income numbers anymore (as my newsletter subscribers know – hint, hint), so we are going to have to hit the loan persistently to get it paid off next year like we planned.  In fact, I am truly aiming to have it paid off by July 2013.  It will just be a matter of making sure that any extra we bring in stays in until that wicked witch of a loan is dead.  :-D

So Jason, consider this my gauntlet re-toss, lol.  :-)

Are any of you tackling any big goals this year?  How are you doing?

A Mortgage Payoff Race – A.K.A. Snow Ain’t For Me

You may have noticed in my Financial Blogger Conference 2012 breakdown that a small group of us hung out quite a bit.  During the pizza party on Saturday, Jason from Live Real, Now and I decided to make a bet.

Mortgage Payoff Race

Specifically, we decided to start a mortgage debt payoff race.  We technically both have the cash on hand to pay off our current mortgages, but we also both have other big expenses and cash padding to consider.  We also each have no other debts.  So the bet is to see which one of us will pay off our balance first after handling our upcoming big expenses and building up some basic cash reserves again.

I will be using a huge chunk of change to pay for the 20% down payment on our new house at the end of this month.  Jason will be laying down a lot of money for home renovations on the house he just inherited and needs to fix up for rental income.

In the end, we are racing to see who can pay off around $25,000 of mortgage debt and still have enough padding to be secure.  For me, that means needing to close on our new house, do some basic work on our current house to get it rented, build up another $20,000 in cash padding, AND THEN I will pay off our current home loan.

The Bet

I like visiting blogging buddies more often than just at the conference.  I’ve already visited Suba from Wealth Informatics twice since FinCon 11.  But getting those trips together can be a hassle and the airplane tickets are a bit expensive.  Jason has a family of five to travel with and doesn’t like heat and humidity, but they do have a couple of family members that live near me.  I really never liked snow and would be perfectly happy never seeing any of the super northern states.  So the loser of our debt payoff race will have to visit the winner.  Snow ain’t for me, so I will be sure to kick his butt.  ;-)

Have you ever made a bet with anyone to accomplish something positive?  What were your terms?