This is probably going to be one of the scariest posts I'll write on here. Debt is such a taboo topic of discussion in the country. And here I am, for the first time, about to lay it all out in the open. Don't worry, I received my wife's blessing before I posted this. She is also LifevsDebt's new Senior Editor. She received this position because of her awesome ability to point out my fallacies! Love you Mrs LvD! Now that I've procrastinated a bit, time to delve into the horrors that are our debt!
$246,971.67
That is not a typo. $246,971.67. That is the current value of our debt. I'm finding myself taking pause as I write this number out. It's staggering, sobering, and scary. Probably even more frightening is that it is very typical. There's a mortgage, two car payments, Mrs. LvD's student loans, a loan for some home repairs, a loan for solar, and a financed phone. These are things most adult's have. Of course, everyone's situation is different and unique to them. But I don't think our household is some outlier.
Our Debt, Broken Down
I've read plenty of opinions that state that a mortgage is not a debt. Or, at the least, a bad debt. I do not believe that for one second. You can only consider a mortgage an asset if you can sell it whenever you need cash. Most people aren't buying a home so they can turn around and sell them to make money. They're buying them to live in and lay down roots. Our mortgage is at $114,341.66, four years into a 30 year loan.
Our two car loans are worth $18,282.68 for mine and $15,693.08 for hers. Mrs. LvD's loan was more out of necessity. She did have a reasonable loan on an affordable car. But, the week of our wedding, she had an accident during a snow storm and totaled her car. We both agreed that she should get a larger SUV that we could grow into as a family. We have two dogs and are planning on having kids. She has also wrecked every car she's owned, so I wanted her to have something safe (please don't beat me for telling everyone this, love you!).
My car was a mix of a want and need. I had my previous car for 8 years and was starting to nickel and dime it. I was considering getting a practical and fuel efficient Prius. But then I found an awesome deal on a used 2019 Chevy Bolt EV. Having just put solar on my home, this was a no brainer for me. I convinced myself this was a a good purchase. Honestly, I have no regrets. Not. Sorry.
While inspecting the roof for the solar I found that it was letting water seep through. I wasn't really surprised at this. My home inspector told me before I bought the home that the roof had maybe 5 years left in it. 5 years later I had to replace the roof. We also took the opportunity to do some other exterior work and replace the sliding glass door. This cost is currently at $26,332.03. This is my least favorite debt. The solar loan is at $16,738.23. This debt should pay itself off. With the savings on the electric bill and NJ's strong SREC program, I am completely okay with this debt.
I financed my phone at 0% interest for 24 months. It has $773.75 left on it. The last debt is the Mrs. student loans. She bounced around a couple universities and changed majors a few times before finally finishing her degree. Her student loan is currently at the tune of $52,347.61. I know this debt is a sore spot for her. Don't worry babe, it'll be worth it. Have faith!
Repayment Plan
As I outlined in my budget post, we're taking this month to focus on our emergency fund. If we are able to stick to the budget we laid out this month then next month the goal is to start paying $1000, extra, to our debt. Once we get into April we'll figure out if this is feasible. There are several different methods out there for repaying debt and all of them have their perks. The beauty of personal finance is that it's personal. You're free to use whatever method that works best for you. The two more popular methods are the debt avalanche and debt snowball methods.
Both methods have you paying the minimum payment on all of your debts, except for one. You pay as much as possible every month to that one debt until it is paid off. Once paid off, you take the amount you were paying towards that debt plus that debts minimum monthly payment and add it all towards your next debt. Rinse and repeat until your're out of debt.
The debt avalanche method has you focus on your largest interest rate first, regardless of balance. The idea is that paying off your highest interest rates first will save you more money over time. The debt snowball method has you paying off your smallest debts first. This method really focuses on the small victories and building up that momentum to pay off your largest bills.
Personally, I prefer a combination of these two methods. I like to have my small victories. It feels great when you see progress being made. So our two smallest debts will be paid off first, regardless of interest rates. Once we knock out these smaller debts, then I'll prioritize the larger debts by interest. There will be an exception made for the solar loan. That's going to be the second to last loan paid off since it is basically paying itself off.
Details
I'll categorize my current debts into small, and large debts. Small debts are anything under $2500. Large debts are everything over $2500. There's no rhyme or reason to this. It just feels right to me. This is the order in which I want to pay these off:
My Phone
Wife's Small Student Loan
Wife's Car Loan
Roof / Renovation loan
Wife's Student Loans
My Car Loan
Solar loan
Mortgage
It doesn't make sense to hold onto the two small loans. They'll both be paid off within four months. I decided to do my wife's car next. Not only is it the next lowest balance, but it will also give us the most cash flow when paid off. This will give us some flexibility if we need to adjust our budget in the future.
At 7%, the roof loan has the highest interest rate out of all of the loans. Once this is gone it will be a huge sigh of relief. My wife's student loans seem massive. But, compounding all the combined monthly payments of all the previous debts together should make quick work of them. She is also looking into refinancing her larger rate loans. My car will be next and hopefully, after this one, we never have an auto loan again. At least, that's the plan.
As okay as I am with the solar loan, it is still a debt. It just means I'll get to enjoy that cleaner energy even more so once it's paid off.
We are in the process of refinancing our mortgage. I found a rate of 2.37% interest for a 15 year mortgage! This would cut 1.62% off of our current rate. This would mean more of our payments would be going towards the principle and not to interest. It would allow us to pay off our mortgage that much faster compared to the 30 year mortgage.
Summary
In all, I'm estimating that this would take 7 1/2 to 8 years to complete. When I put this plan together I didn't worry about being too exact with my math. Life is going to make sure to throw a couple wrenches in our plan. We need to be flexible. If I can pay everything off in 10 years, I will be thrilled! Or, maybe, this blog blows up in the best way possible and we can pay everything off by this time next year. Who knows?