My relationship with debt has been much different than the average American. I took out ~$65,000 in student debt to attend a private university and I have regretted this 0 times. I chose a major that I thoroughly enjoy and that has paid me sufficiently and I do not feel that I would have the same opportunities in my professional life as I would had I attended the local state university. Paying off the rest of it leads me to today’s topic: making and sticking with a debt paydown strategy.
Paying Down my Debt
To me, this debt has provided an incredibly high ROI. I currently own a house with a mortgage that I plan on paying down as slowly as I possibly can.
What will I do with the extra money? The current long-term plan is to use the free cash flow to take out even more debt in the form of more houses. PK and I have joked about putting a debt counter with the goal of a higher number on the blog before, yet I have never carried a credit card balance or used a payday lender.
To me, debt has always been a useful and positive force in obtaining my financial goals and for this reason I enjoy writing about the many useful things debt can provide in personal finance – something you might not gather from all of the negative posts on debt.
Psychology of a Debt Paydown Strategy
My most recent major goal accomplished was purchasing a house. The steps heading into this one were easy for me:
- Save most of my paychecks and build up a down payment in the form of bonds.
- Research the APR of mortgages to see whether I should go for 15-year, 30-year, fixed or ARM, FHA or not, etc.
- Research the houses in the local area to determine where the best price-to-rent ratio is in proximity to my job.
- Calculate discounted cash flows and ROE of various investments and begin the tactical plan of renting my room out.
All of this has been extremely rewarding from a time management perspective and I enjoyed my time doing it.
Now that my goals have shifted, however, I find it more difficult to maintain my focus. With a house, my goal is personified tangibly in the form of, well, a physical house. I can look at it and live in it and it provides a service to me. With my debt paydown strategy, I am paying off the loans so that future cash flows will be larger.
I have a background in finance so I can understand the need to distance myself emotionally from the argument but it still feels less real to me than the physical objects gained by purchasing more houses. For every loan I payoff, it simply means I have a smaller monthly liability: what I do is think of paying down debt like slowly gaining financial independence.
For every loan I pay off, that is $X/month of a liability that the future Cameron will not need to pay. This could mean many things: faster retirement, dining out more, or even taking a lower paying job for location/personal/family reasons. It simply provides the freedom to make the choices without the liability hamstringing me.
This is why I want to crank this all out in one year. So I can start focusing on buying high-ROA objects again.