Sunday, May 24, 2009

We've Achieved Zero Debt

On May 20, 2009, we paid off our mortgage and became 100% debt free. Here are some the consequences of our decision:

  • Savings reduction. It cost almost 1-1/2 years of my pre-retirement, pre-tax salary to pay off the loan. Most of the funds came from selling stock in our investment accounts. I finally came to the conclusion that paying off a 5 3/8% loan was likely a better return than investing in stocks.

    Unfortunately, I should have listened to my spouse who wanted to pay off the mortgage a year earlier.

  • Monthly expense reduction. Our monthly expense will be reduced by 24%, extending the longevity of our savings by that amount. Fortunately, we only expended about 10% of our savings to pay off the mortgage, thus making the choice a good trade off, i.e. 10% savings loss for a 24% gain in time savings will last.

  • Stock market losses. It's no surprise that selling out the investment accounts resulted in a high number of capital losses. Combined with the loss carryover from 2008, it will take many years to write off the amount on our tax return.

  • Peace of mind. We no longer can lose our home due to missing mortgage payments. Not paying property taxes is now the only reason for which our house can be foreclosed.
  • Overall, we're glad the mortgage is paid off. It's one less thing to worry about as we navigate our choice of early retirement through these treacherous economic times.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC


    Jake Stichler said...

    Okay, obviously there are cons to paying off debt for everyone, but congrats all the same!

    Chuck Cory said...

    First, let me congratulate you on paying off your debt. How are you going to build your wealth?

    Second, Jake says there are cons to paying off your debt for some people. I am always willing to learn. When can debt be good?

    Super Saver said...

    @ Chuck,

    Thanks and good question.

    Currently, I'm working primarily to preserve our wealth, which has been significantly reduced by the stock market decline. For preservation, I am investigating a few post retirement career opportunities that will help reduce our savings withdrawal rates. To rebuild our wealth, we continue to use investing in the stock market, which I still expect to recover in the long term.

    Chuck Cory said...


    Second part of question inquired about when can debt be good?

    Have you thought of using whole life as and investment vehicle? Just curious.

    Super Saver said...

    @ Chuck,

    As I wrote in My Personal Experience with Debt, I don't assign the designation of "good" or "bad" to specific types of debt. To me, using debt is an economic decision and that decision may be good or bad depending on a specific user's circumstances. For example, using debt to buy a car may be a good decision for one person but a bad decision for another. Same with a house or college education. That's how I think about it.

    On the whole life question, I typcially have kept life insurance and investing separated. When I was working, I purchased term life. I do recall reading about situations when whole life may be beneficial, but the situations didn't apply to me.

    TStrump said...

    Congrats on paying off your debt!
    That's a huge accomplishment.
    You're way ahead of most people.

    Oscar Lang said...

    Being able to pay off your mortgage is a huge achievement! Yes, it took a lot of sacrifices to get to this point, but you can now rest easy with the knowledge that your house is officially your own. The slump in the economy didn’t make it any easier, which is why you should definitely celebrate your freedom from debt.