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 noting that we had met a goal.

To be debt-free, we actually broke a couple typical personal finance/financial independence “rules”:

  1. We put a lot of money toward debt payoff even though our cash reserves are extremely low.
  2. 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?


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About frugalparagon

I'm a part-time librarian and mom to two small boys. I blog about striving for the long-term goal of financial independence while running a tight ship at home.

11 responses to “Debt-free and Why We Did It”

  1. David says :

    With interest rates that low, I would have kept paying only minimums unless circumstances required better immediate short term cashflow.

    • frugalparagon says :

      That would admittedly have, in theory, made more financial sense–but humans aren’t always logical. I think it might help keep our motivation up and thus actually pay for itself!

  2. Matthew says :

    Congratulations! That’s excellent progress since January when you laid out your existing debt. We’re taking David’s approach and still have a monthly student loan payment, but your way avoids the risk of losing principle in a stock market crash. Plus, you get to revel in the knowledge that you’re debt free. Enjoy!

    • frugalparagon says :

      Thanks! Yeah, it’s not a great return but at least it’s guaranteed. The balance was small, but the payments were so small that we would have had the debt hanging around forever! Nice to just knock it out.

  3. nicoleandmaggie says :

    I was going to say that I totally would have waited to pay off a loan under 2%, but then I remembered that I had subsidized loans from the government that were collecting no interest when I was in graduate school and my father gave me the money to pay them off (saying I could hold onto the money or pay off the loans now, whichever I preferred) and I paid them off. Only about 2K, but still. At the time CD rates were around 5%!

    These days we are holding on to our mortgage debt even though we could pay off the balance because we do like that cushion in savings (in case DH loses his job) and we don’t want to sell stocks to pay it off. But it feels like we re-evaluate every month.

  4. Rachael says :

    Congratulations! That’s quite an achievement. The psychological benefits of paying the loan off, especially as you embark on a new life in a new state, are huge. You must feel great to have achieved this goal. Best wishes for the move.

  5. The Pinay Mom says :

    Congratulations on being debt-free! A lot of financial gurus give different advice on paying off debts. But it’s true,when you pay off one loan it gives you relief and motivation.Some say pay off the one with high interest and Dave Ramsey says pay off the debt with lowest balance. I think it all depends on how we tackle our debts and if you’re comfortable with its results.

  6. Vee@VeesEasyVegan says :

    Feels good doesn’t it! I too am out of debt and clear. I strive to spend less than I earn and remember that having stuff does not always make a happy life. Love your blog. Following.

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