I have a bit of a confession to make. Last week I updated people on my debt repayment. One of those primary debts (and I only have the three) is a personal loan. The other two are a mortgage and my student loans. In writing about paying off debt, investing, saving, and trying to find “balance” in my financial life I have never really mentioned what the personal loan was for.
In April of 2014, I knew that Mrs. ROB and I were going to be looking for a house. However, at the time I had a bit of credit card debt that I still hadn’t paid off. Additionally, I only had a small portion of a down payment for a house. When I took out my personal loan in April 2014 I actually took it out for a bit more than was actually my total debt and used the balance as part of my down payment on the house and closing costs. In essence, I got a second mortgage (ironically at a much cheaper rate than my original mortgage).
Despite that fact I am not necessarily proud of what I did. I could’ve just taken the consolidation/personal loan out for the credit cards and saved for the house. Now over the next five months I did save a considerable amount of money (about $10000) because of extra work I did during the summer. I squirreled that money away and in combination with the extra income I had on hand I was able to make a 5% down payment on the house, pay closing costs, and furnish the home (with Mrs. ROB’s help).
The total on the personal loan came to $32000. I forget how much at the time, but I want to say about half of it was actually for credit cards. It might have been a bit more I don’t totally remember for sure. I don’t recommend that is how you get a down payment for a house. I should have done things differently. If I would’ve just taken the personal loan out for the credit cards I would probably be out of debt by now, but I am not sure we would’ve bought our house, furnished it, etc.
As I was thinking about my debt payment update I realized that I am now just starting to pay off my “second mortgage.” For just about a year and a half I have been aggressively paying down this personal loan. By the end of October I will have paid off almost $19000. That is, of course, a good thing.
However, I am now going to change my mentality a bit. Instead of thinking about this debt as a separate debt from the house I am actually re-calibrating my mindset to consider this part of my total mortgage. That doesn’t mean I am going to stop aggressively paying this off. In fact, my end of 2016 goal still holds true, but my birthday in August is my ultimate goal.
Reasons for the Mindset Change
- I think that by changing my mindset on the personal loan changes a bit how I approach the debt in general.While I have been aggressively paying it down I have also been kicking myself for taking it out in the first place. I need to have a reset button on this debt. Even though I believe there is no such thing as good debt what this does is give me a mental break in how I think about paying off debt. I have already mentioned how I engage in monetary mental gymnastics over money. This will hopefully lessen the number of scenarios I run in my head.
- In my brain having two debts is better than having three. By combining the personal loan and mortgage together mentally (they are not actually combined into one loan) then it makes it easier to believe that I am closer to paying off my debt total.
- This new mindset will impact future debt payoffs. I am one of those people that hates to waste money. And I fully admit that buying clothes for myself or sometimes even going out to eat I can see as a waste of money. Maybe a better phrase is that it could be “better spent” somewhere else. I need my money to work for me. By combining the two debts together I can mentally then justify taking my future payments on the personal loan and applying them to my mortgage. My fear is that if I had an extra $1000 or whatever per month to play with that I would waste it. That I would do something unproductive with it. By forcing myself to combine the two debts I can merely add the money I am using to pay on my personal loan and put it toward my mortgage.
- This is a continuation of number 3. I have a new debt payoff goal. My new debt goal is to have my mortgage paid off by the time I am 50. I am 42 now. That gives me 95 months to payoff my mortgage. I think I can do it. By combining both debts together I am mentally paying off my mortgage in larger chunks, which will lead to that ultimate goal of paying it off by the time I am 50. Moreover, if my calculations are correct Mrs. ROB and I should be joining the two comma club right around our late 40s/50 or so if the market performs on average like it has over the past few years.
- This accelerates my goal of financial independence. The entire goal of this blog/financial journey has been to create financial independence. Unlike some other wonderful bloggers out there I don’t anticipate that I will retire early. I don’t think that I will lose my job and I don’t want to quit my job. I love what I do. Every day is different. Sure there are things I don’t like about it, but isn’t that true of all kinds of things in our lives. Just because you retire early doesn’t mean that there won’t be things you won’t like, but have to deal with. What I want is financial independence and flexibility. I want the ability to stop teaching extra classes or working during the summers. I would love to get back to some more academic writing or at least more than I am doing now. I would love to be able to take a couple of months off and do some research in Europe or give some lectures. I can’t necessarily do that while I have these debts hanging over my head like the sword of Damocles.
- In some respects it forces me to work even harder. For example, if I combine the personal loan and mortgage together my mortgage debt has gone up from $162,762 up to about $177000. That increase, knowing me, will drive me a bit loco, which means I will want to reduce it quicker. I will throw more money at. Accordingly, which reduces my debt even further. As I said I want my money to be productive. Throwing money at debt, reducing the overall debt, reducing the amount of interest I pay, and getting an instant return on my money makes me feel better, at least mentally.
The Bottom Line: This new debt mentality, for me, is I think a good thing. If I could I would actually combine all of my debt into one big loan (including Mrs. ROB’s student loans/debts) just make one big payment each month. I like to have everything under one house. This new mentality, at least partly, allows me to do that. I hopefully will pay off things sooner. The quicker I get to financial independence the better I feel.