How much debt have you paid off?: $409,000. (There is just $9000 to go!)
What was it for?: Mainly purchase of a home and subsequent renovations. Also, the balloon payment for a new car. In retrospect, I know this was a daft decision.
From deciding to become debt free to making the last payment, how long did it take you?: In some ways, the 20-year term of the mortgage. However, my financial decisions have been wiser and more focused on being debt-free over the last four years. If I hadn’t changed my approach, I would probably be adding a bathroom renovation to my mortgage now rather than being committed to saving up to do it in the future.
What age did you take on your first debt, and how old are you now?: I was 34 when I bought my home, and I’ll be 54 when the mortgage is paid off.
Did you do it alone or as a family?: Alone.
Did you pay off debt from your regular income, take on extra work, or change jobs to speed it up?: A bit of all three. However, I also reduced my income a couple of times for further study or to do work that better suited my values.
Did you sell anything or receive cash gifts to contribute towards your debt payoff?: $9,000 inheritance. I put a third on mortgage, a third in shares and spent a third on something I love.
What people, books, websites, podcasts, budgeting tools, debt trackers and resources helped you?: Mary Holm, The Happy Saver, MoneyHub, Sorted and to a lesser degree, people like The Barefoot Investor, JL Collins, Dave Ramsey, and Rebel Finance.
Did you keep an emergency fund while you paid off debt? If so, how much?: Not until this year. Because I’ve always had a little chunk of my mortgage in a revolving arrangement, I always thought I should just plough everything spare into my mortgage - it sort of doubled as an emergency fund. However, a comment I heard on a Rebel Finance podcast reminded me that the value of an emergency fund is that it means you don’t go further into debt to cover an emergency expense.
Did you have any setbacks along the way, and how did you overcome them?: Every time I almost paid off my mortgage, I did another renovation. I have no regrets about my renovations, but I do regret that it didn’t occur to me that people save for renovations rather than just stick them on the mortgage! However, my biggest setback has been that I’ve never had a habit of saving. My mum was a single mum and got no financial help from my dad. Whilst she had good money knowledge, e.g. she always had a wee spreadsheet about when bills would be coming in, she just couldn’t earn enough to avoid having an overdraft for 20 years while she raised us. (Cruelly, she died in her early 60s a couple of months after becoming debt-free - life’s really unfair sometimes) Needless to say, it’s not her fault I haven’t been a saver. I should have known better. I’ve just lazily assumed that because I live within my means, it will all be okay. I’m still trying to become a saver - I’ve tracked my spending, created different bank accounts for bills, lifestyle, annual expenses, etc, and made a budget that I stick to more or less. In addition, I’m in KiwiSaver, and I have started regular small payments into an All Country index fund. And I have a small emergency fund - these can both grow once the mortgage is paid off. Of course, I’ll also start saving for the bathroom renovation and to replace my car - a new approach for me.
What tips/hacks could you share?: If you can, find someone willing to talk to you about money. That is still the hardest thing for me. Particularly since I’m on my own, I would have loved someone to check in with me in my 30s, 40s, and now 50s to see if I was on track. None of my friends are particularly keen to talk about the financial decisions they make and why.
Get yourself informed about things like compound interest - read, listen to podcasts, etc. Not just the experts but also things like the debt-free questionnaire where people talk about what they’ve done and why - that stuff is such a revelation to me.
Know your numbers - what you earn, what you spend, what you save, what you invest (Note to self: what you save is different to what you invest - you’re usually saving money to spend it on a specific thing. When you’re investing, you’re putting money away for the future)
You might not hit on the best strategy immediately, but just keep trying until you find something that works for you. For a long time, I found tracking spending much easier than setting a budget, but I’ve done that now. I’m hoping that when I get the mortgage paid off, I can give sinking funds a go, but if they don’t work for me, that’s okay; I’ll try something else.
Was there a structure to your debt payoff? i.e. paying smallest to largest, or highest interest rate to lowest?: I laddered my mortgage so that different bits matured at different times to minimise the impact of interest rate fluctuations. I always made the maximum payments I could. I always had a portion floating so I could pay off extra - that worked well until I became the renovation queen!
How did you stay motivated, and what was the most challenging part of paying off your debt?: It hasn’t been difficult to stay motivated to pay off my mortgage. The tricky bit for me was miscalculating the order in which to do things. My plan was to pay off the mortgage, have an emergency fund, and start a saving habit. I think I should have done things the other way around.
How did you celebrate making your final payment?: Hopefully, I’ll do that on or before April 4, 2024. I don’t know what I’ll do, but it will probably involve staring at my $00000 mortgage balance with glee.
Was getting out of debt worth it, and what have you learned about yourself?: Definitely! I’ve learned that I still hate delaying gratification, but I can do it when I understand what I’m doing and why. So many financial planning strategies don’t explain the why, but the more I engaged with websites like yours, the more I heard about the reasons underpinning the advice. I’m one of those annoying people who needs to know why.
Will you ever go back into debt again?: I really hope not. It’s not a decision I would make lightly.