Freedom from Payments

Happy July Fourth to my US readers! The ThreeYears have just settled in to our new house in North Carolina (ok, “settled in” might be a bit of a stretch. We are navigating through a sea of boxes and questioning why moving into a smaller house was a good idea all while not being able to find anything!).

I wrote this post several days ago and thought it was a good read for Independence Day. Because as we all know, financial freedom is an incredible type of freedom.

Freedom from Payments www.thethreeyearexperiment.com

Today is Friday. We’re officially 100% debt free, as of 9am this morning.

Until Monday.

We just sold our house in New Hampshire and we can enjoy three days of being completely debt free before we purchase our new house in North Carolina.

Going forward, our mortgage is the only debt we’ll have. And that feels really good.

In 2008, we started our debt free journey. We paid off $38,000 in consumer and car loan debt in 18 months. Then we moved to New Hampshire in 2010, selling our house at a loss. We saved up a 20% down payment for a new house over two years, but when we used every available dollar in savings for that, we went ahead and financed two cars.

Back of the house--www.thethreeyearpexperiment.com
Our house in New Hampshire.

During that whole time, we’d kept paying the mortgage on our apartment in Chile. We bought the apartment back in 2004, with a fifteen year mortgage. A family member currently lives there, and we stay there when we visit.

When we started our three year experiment at the beginning of last year, I realized that if we paid off both cars and the apartment in Chile, we would free up a huge amount of money each month for savings and investing. So, we spent the year channeling extra money to those three accounts, one at a time, in order to pay them off and free ourselves from those three payments.

In January, once we’d paid all three debts off, we began to experience the freedom that not paying car and apartment loans can bring.

We got to keep all that extra money and send it to savings. That felt incredible! We watched our emergency fund grow so quickly. Not owing that money and owning our cars and the apartment outright felt really good.

Even though financing a purchase, like a car, can help you in the beginning, if you don’t have the cash to buy it outright, paying it off early feels so good. Often, while you think about what you can afford, you don’t realize the mental burden that those payments will have on you, month in and month out.

If you’re unhappy in your job, knowing that you have a car payment to make makes it that much harder to leave and find something better, that perhaps pays a little less. It’s one more financial shackle around your ankle that you’re lugging around.

It took us a long time to reach payment freedom, but now that we’re here, we’re not planning to go back. We’ve set aside money to buy a new car outright with cash, should we decide to. We’ve

The Process

Now that we’re on the other side, it’s easy to forget how hard we worked to get here. For several years after we got our cars, we paid our monthly payments and didn’t think about paying extra, mainly because the interest rate was so low. Once we realized how much money we’d free up, we made a plan, but it was slow.

In November of 2016, we made a lump sum payment with Mr. ThreeYear’s end-of-the-year bonus and paid off the balance on the Accord (it was under $4000 at that point). Then, we took the Accord payment and snowballed that into the Prius payment. We added $200 to the total Accord payment per month to speed things up. Even with an extra almost $500 per month going to principal payments, it still took the entirety of 2017 to finish paying off the Prius. Every month, I’d record the new balance in our net worth spreadsheet, watching the principal amount slowly tick downward.

Paid off apartment in Chile www.thethreeyearexperiment.com
Our apartment in Chile is now paid off.

We’ve been paying our Chile apartment down for thirteen years, so we made a lump sum payment at the end of the year and paid it off as well. That sucker felt incredible.

It’s sometimes hard to prioritize paying down debt, especially mortgage debt, in the face of so many other financial priorities. As Moose and I discussed in our debt matchup on Rockstar Finance, there are a lot of (good) reasons not to pay off debt and invest the money instead. But I’ve never felt as free as I have after getting rid of the burden of these monthly payments. They’re out of my mind. No more mental energy is sucked up thinking about them. Mental bandwidth has been cleared.

No investment has been able to do that for me, so I’m still firmly convinced that paying off your debt is a smart move.

Paying off the House

Now that we’ve experienced freedom from car and investment property payments, we’ve signed away the next fifteen years of our lives for a new house. What the heck?

There are plenty of people, like John from ESI, who pay off their homes early. There are plenty of others, like Liz and Nate from Frugalwoods, who choose to keep the debt.

We took on a shorter mortgage and may decide to make extra payments, much like Penny from She Picks Up Pennies is doing. I’m not sure yet. But I do know that we won’t have a mortgage in our (early-ish) retirement. We may have to hand over electricity and water payments each month, but the debt payments will be gone.

So happy Independence Day to you! How do you feel about freedom from payments? 

The Average Joe’s Ultimate Guide to Getting Out of Debt

What would your life look like with no more payments? No more car payments. No more credit card payments. No more student loan payments. How much extra money would that give you? Imagine the freedom to travel, to build your dream house, to finally retire. It’s a new year. And a chance to finally, once and for all, get out of debt. But what if you’ve tried before, and nothing’s worked? Or you’ve gotten out of debt only to get back into debt?

Average Joe Ultimate Guide Debt--www.thethreeyearexperiment.com

If you’re reading this, you may have an overwhelming amount of debt to tackle. Or you may be a personal finance guru, and need this advice like you need an extra helping of pasta with dinner.

Never fear! This guide is designed to help you get out of debt, but much of this advice will also work for other large, looming goals you’ve set for the year.

But why, you may be asking yourself, should I listen to this random voice on the internet? What does she know about how to get out of debt or how to accomplish my goals?

Our Story

I have written every detail of how Mr. ThreeYear and I managed to get out of debt in this post and this follow up post, but in case you’re new, here’s a recap.

When Mr. ThreeYear and I got married, we were both debt free. This is something of a miracle when most college graduates finish college with debt. According to Tica, The Insitute for College Access and Success, 76% of graduates from New Hampshire, where we live, have college debt upon graduating as undergraduates, and the average debt burden is $33,410. That’s for undergraduate education!

I was fortunate to have scholarships to college and parents who paid the rest. Mr. ThreeYear was fortunate to live in a country where undergraduate education is more reasonably priced: Chile. When we met (in said country), neither of us had any debt. We spent a few years living like the DINKS we were, but Mr. ThreeYear’s way: we bought everything in cash. If we couldn’t afford to buy it with cash, we couldn’t afford it. I scoffed at Mr. ThreeYear as he saved up to buy a car, in cash. “Why don’t you just take out a car loan?” He looked at me like I was crazy. “I don’t want to take out a car loan! I’ll just wait and buy it when I have enough money.”

hiking in Chile--www.thethreeyearexperiment.com
Mr. and Mrs. ThreeYear, very long ago, in Chile.

Two years later, we moved to the States. We moved to the fast and furious city of Atlanta, where Mr. ThreeYear, and then I, found jobs, and slowly, every-so-slowly, we began to adopt the Atlanta way of life. First, we bought a house. We had been renting a very nice, 1100-square-foot apartment that was 15 minutes away from Mr. ThreeYear’s job (it was literally two miles away from us, but you know, Atlanta traffic). It had tennis courts and a pool, and a low rent (we paid around $850 a month for a two-bedroom in the heart of the city), but we decided we should buy a house, instead. Continue reading “The Average Joe’s Ultimate Guide to Getting Out of Debt”