Financial Freedom out of debt 2017

Tens of thousands in debt, to tens of thousands in savings

This post has been a long time coming. Ever since the first day I stumbled upon the Mr. Money Mustache forum, begging for answers to my crumbling financial life.

For those who are new, the story was simple yet grotesque. We had approximately $45,000 in debt and our income wasn’t such where we could support it. The full details of our BEFORE situation, is listed in chart form below.

ITEMMONTHLY  TOTAL INTEREST RATE
GARBAGE36
CALE/INTERNET114
WATER50
GEICO AUTO135
MASSAGE70
AUTO LOAN39335916.54%
MORTGAGE1761164,7175.125%
FUEL200
GAS/ELECTRIC150
GROCERIES1365
EATING OUT884
CAMERAS25
PARENTS030,K
CC119485625.24%
CC2134449524.49
CC32550523.24%
CC42545210.23%
CC52069218.49%
CC67579724.15%
CC7 (STORE CARDS)100202025.24%
Furniture Loan276195025%
 Property Tax Payment Plan535 11,365 18%
TOTAL$6,567$45,358

Assets:

Primary home – Owe $164,717, worth $175k
Rental – Owe $25k HELOC + $11k taxes, worth $70k to $80k
Car – Owe $3,500, worth $13k to $15k
Cash – $850
401k – $5,000

Liabilities:

Income tax – $40k
Property tax on rental – $11k

NET WORTH:

$0

The MMM forum sprung into action with advice and tips that would save our financial life.

Over 50,000 people read that thread, with over 20 pages of responses totaling in the hundreds (maybe thousands?) of posts/responses.

After a few pages, I noticed a theme. Nearly everyone agreed that the rental property we owned should be sold, and the profit should be used to pay off our debts.

Reluctance to sell the rental property

I would like to say that I immediately agreed with the advice on the rental property and took action. But I didn’t.

I balked at it. Made excuses. Even lied a little bit to keep people from continually suggesting it (sorry!).

But eventually, I realized they were right. I even realized that it was a blessing that we owned the rental property, as it gave us a solution to our debt that no many families have.

After some reflection, we listed the house for sale and decided to change our life forever.

Paying off debt in the meantime

While the house was on the market, I wanted to take steps to pay off debt.

I didn’t want the home to be the sole reason for our life change. I wanted to take an active part in it.

So I started an online business on UpWork. And It took off like gangbusters! I couldn’t believe it.

In my first month, I earned about $5,000. In total, I have earned around $9,000 since February.

This money went straight toward paying off debt. More specifically, a downpayment on our property tax installment plan, paying off Credit Card #1 (chart above), putting a good chunk towards our car loan, and then paying off Credit Cards #3 and #4.

This left us feeling really good and also reduced the amount we would have to payoff when the home sold.

Rental property is sold and paying off bills

The rental property sold fairly quickly, leaving us with 45 days to move the tenant out, make some minor repairs and handle the closing.

Finally, in early June, the sale was done and we received a little under $50,000 in our bank account.

With that $50,000 – We have so far:

  • Paid off Credit Cards #2, #5, #6 and #7.
  • Paid off the remaining balance on our car loan
  • Paid off the property tax installment loan (part of the closing)
  • Paid off the furniture loan
  • Put $5,000 into an emergency savings account
  • Put $10,000 into couple Vanguard retirement funds
  • Paid 3 months of our mortgage in advance, so in the case of a drastic life event we have 3 months of no mortgage payments to deal with.

Some of this wouldn’t have been possible if we didn’t start paying off debt and reducing our loan size prior to closing.

The result of all of this is the following…

 

ITEMMONTHLY  TOTAL INTEREST RATE
GARBAGE36
CALE/INTERNET114
WATER50
GEICO AUTO135
MORTGAGE1761164,7175.125%
FUEL200
GAS/ELECTRIC150
GROCERIES750
EATING OUT100
CAMERAS25
TOTAL$3,321Just the mortgage

 

Assets:

Primary home – Owe $163k, worth $175k
Car – Worth $14,000. Owe nothing.
Cash – $5,000
401k – $7,100
Vanguard – $10,000

Liabilities:

Mortgage?

NET WORTH:

$48,100

The result – Summary

Our monthly expenses went from $6,567 to $3,321 = $3,246 per month saving

Assets went from virtually nothing to almost $50,000.

Liabilites? None, other than the mortgage.

Net Worth? $17k including 401k and Vanguard. $5k in cash. $12k equity in our home. And about $14k equity in the car. Though, i’m not sure if to count the car as that equity will decrease in time.

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