To Become Debt Free

"After 4 years of focus, we’re now completely debt free and thrilled about the future ahead of us.  Last month, we paid off the $195,000 mortgage on our dream home."  That's how this blog by jackie began.  Of course I read the whole thing.  The achievement is impressive and should be sought after by everyone.  The original is stacked with advertisements and the content is pretty fluffy.  So, I summarized the meat, and shaved out the paperwork piñata, numerous family photos of said piñata, and summarized the valued content.  This way you and your household can add your own creative flavor to make the intentional, determined, hard work of the project fun in your own way, lose the fences and live free and wild and out from under the oppressive thumb of wall street.

These are great financial tips they used to pay off  $195k in such a short time:

1. Know why.  

If you don't know why you want to become debt free from banks, you won't care how to become debt free from banks, because you won't be motivated to become debt free from banks.  Yes, I said that three times on purpose, and will again.  I work in the largest industry in the world, real estate, and I can promise you, banks down't want you to learn this stuff.  Everyone has different reasons they'd like to live debt free.   Your reasons are your own and you need to know them  for yourself.  Banks profit from your debt and they want to keep you there.  One more time, say it out loud "I want to become debt free from banks"  


2. Mortgage Payment Goal: 25% DTI

Loan originators, or mortgage brokers, will bring up something called your debt to income ratio.  The simple math to understand the basics of this is this: (projected mortgage payment plus any existing debt payments) divided by monthly income.  Now the bank requirements to qualify for the home loan is maximum approx 43%.  It fluctuates just like interest rates do based on current economy metrics.  After factoring in all other standard expenses of the average household, 43% in modest housing markets is an estimated paycheck to paycheck lifestyle.  But they don't down sell you the benefits of aiming for 30 or 25.  Instead, they will lend people right to the bank maximum time and time again without blinking because we'd all like the cuter, smarter house that costs more and they profit from our happiness with the product at the end of the rainbow.  This margin line is where foreclosures often come from.  Mortgage to the hilt > hardship > foreclosure > sorry Charlie, start over in 3 - 7 years.  Use a calculator and do your own math rather than trust the bank recommendations, okay?  They'll tell you you qualify for up to 325K, don't buy there, buy something more comfortable, more modest.  Veer yourself, your taste, your greed as far away south of that marginal DTI as possible.


3. 15-Year Fixed Rate Mortgage

If you and your lender can make this work on your income do it.  The interest savings are tremendous.  Right off the cuff, I want to say its over 40% of your principal in savings value, not to mention it automatically has you paying out in half the time.  180 payments instead of 360.  The monthly amount is a bit higher, so I suggest buying an even smaller house to make up for it.  You don't need all that extra space anyway, right?  Say it again, "debt free from banks"!


4. Live on 50% of Your Income

From the same model as mentioned above on monthly payments the bank model estimates recommended 43% for the home loan leaving 57% toward other costs, like energy, taxes, insurance, grocery, entertainment, etc.  Now shave 7% more out of this.  Some suggestions on where you might find these rogue dollars: 

• Dump your cable TV
• Shop smarter at the grocery
• Find free entertainment opportunities (libraries are an untapped resource)
• Forego coffee baristas
• Don't drink alcohol

5. Have a goal, create a plan, and commit to it!

This is just a functional facet of any important and challenging project.  We help people succeed with this kind of thing because it can be daunting.

• You can read a summary about goal setting over time HERE or, 
• You can request more personal assistance HERE
• Let's say that phrase aloud again, "I want to become debt free from banks!"

6. Increase Your Income

Bust ass at work and win that promotion, or get that raise.  
Earn more commissions if you're not salaried
Get that O.T. if you're paid hourly. 
Side Hustle - there are many books written on this subject.  I personally know a guy who makes his entire living this way.  


7. Track Expenses

Budgeting works for some people, tracking expenses works for anyone.  Even those who categorize their budget can miss budget leaks in the little expenses that add up.  An unnoticeable $2 habit can easily become $50 per month.  Watch every penny, not because you're a miser, but because you want to be informed about your own usage.


If you can do all of these, you should have created a healthy financial position that not only keeps you in the black, but also builds a substantial kitty.  If you're smart, which I know you are, you leave a significant enough portion in there for rainy day expenses, and you've also figured out that you can make **interest free, penalty free, principal only** payments toward your mortgage.  Repeat that.  "Interest free, Penalty free, Principal only Payments."  This is how Jackie really reduced the 30 year made 15 year plan into just under 4 years.  Interest is compounded monthly.  These interest free, penalty free, principal only payments, reduce the total amount you owe, as well as remove time from the end of the loan.  Her household succeeded at all 7 of the above tips.  Maybe you can only do one.  Maybe more.  Maybe all.  Whatever the capabilities are in your household, the sooner you can act, the more impact you'll have in race to become debt free from banks!