Debt-free and Why We Did It
It’s official: We’re debt-free! Our very last loan–Mr. FP’s student loan–is paid off. We have no outstanding student loan, consumer, or credit card debt (aside from our regular grocery-buying card, which we pay off every month). We even got a nice e-mail from Mint.com noting that we had met a goal.
To be debt-free, we actually broke a couple typical personal finance/financial independence “rules”:
- We put a lot of money toward debt payoff even though our cash reserves are extremely low.
- We paid off a loan with a very low interest rate (1.62%) instead of putting that money in a higher-return investment like the stock market.
So why did we do it? Mostly just because it “feels good” to be debt-free. Our student loan debt (mine especially) and even more so our car loan debt (which is a few months gone) was a remnant of our old way of thinking, when we (more so Mr. FP) were okay with carrying “good” debt. Shedding the debt just seemed like a natural accompaniment to shedding the way of thinking. Since the balances were pretty low, knocking out the loans was an accessible first goal. Meeting it gave us an instant feeling of success that will hopefully keep us motivated financially.
We felt reasonably safe paying it off even with low cash reserves because Mr. FP is a teacher with a contract for next year. His job is thus quite stable. Plus, we feel more financially secure with that monthly line item removed from our budget. The money that was going toward paying that loan can and will now go toward building up cash first and then toward other goals, like buying a house.
We do plan to go back into debt in the form of a mortgage in the next few years, but barring unforeseen circumstances, we won’t again take out a car loan or other consumer debt ever again. Other people might have made different choices, continuing to make just the minimum payments on a low-interest loan while socking away money for other goals, but that didn’t seem like the right course for us.
What about you? Do you prioritize saving or paying off loans?