A significant amount of our early retirement planning involves a passive income stream from rental real estate. We have plowed through our debt snowball for nearly ten years, paying off one mortgage after another, and then loading up additional principal payments on the next loan slated for early completion. This has, at times, seemed endless. With the elimination of each debt, the additional principal payments continued to grow. Now, at last, there is a light at the end of the tunnel: the good news is that we will eliminate all our debt interest in 2016.
We are preparing to join the zero percent financing club. No, I am not talking about taking out a 0% credit card “offer” to transfer balances or receive a cash advance, or attempting to leverage the benefit of receiving award points or miles. We intend to pay no debt interest, since we will be debt-free. Rather than make a balance transfer to achieve this goal, we will use our passive income to pay down our debt and join the zero interest movement.
We see reaching the debt-free finish line in March 2016. One could ask: How can you eliminate loan interest in 2016 when you do not expect to pay the loans off in 2015 and you are not using a 0% balance transfer?
The answer comes from looking at the sources of the remaining debt interest.
A Review of the Remaining Debt Interest
I mentioned in an earlier post that we paid off our home mortgage early this year. That was the end of remaining personal debt for us. However, the rental properties are assets held in a separate business account and have various mortgages and short-term notes.
For the past ten years, we have accelerated our focus to eliminate both our personal and business debt, to become debt-free prior to our retirement. We reviewed this debt-free strategy in our series about reaching early retirement. Today we have two loans left: the first with a $15,390 balance remaining and the second with a payoff of $30,000.
The Debt-Free mobile app
Loan #1. The first loan, with a $15,390 balance, is a loan that I secured eight years ago with a major bank. I have worked with a certain business loan officer over 15 years, following him from his first to his current bank, cultivating a great business relationship. The original loan amount was $140,000 amortized over 15 years, with a balloon payment on the remaining balance after five years. Three years ago, we refinanced the balance, instead of paying off the balloon, with a new 10-year amortization. The new loan also has a balloon at the end of five years. Based on our plan, we will pay this loan off—25 months early—in December 2015.
Loan #2. The second loan was secured for $30,000 with an individual; the interest and the balance are due in July 2016. My wife and I used the original funds from this loan to pay off another, much higher-interest, note.
The Low-hanging Fruit to Grab Now
We plan to make an enjoyable two-hour drive from Sedona to a Phoenix branch office of our bank in early December. I will have pre-arranged with the bank’s loan department to get a final payoff amount for Loan #1. With additional principal payments in October and November, the balance will be less than $4K.
I picture us walking into the bank’s branch office beaming with pride and happiness. We will have a check for the exact balance, paying it off at the branch office, officially kicking this debt forever to the curb!
Wham! Only one debt left.
We will celebrate this event by staying a couple nights at the Scottsdale Marriott, using some of our accumulated points to enjoy a free weekend. Today we are only ten weeks away from making this happen!
The last property loan will be finished soon. Here comes debt freedom!
The $30K loan is due in July of 2016. However, we plan to accelerate our debt snowball to finish early. It is amazing how momentum and motivation grow when you get so close to becoming debt-free. I can almost feel and taste that freedom. The light at the end of the tunnel is no longer a quickly approaching train; it is bright sunlight on a clear fall day. We’re about to experience the wonderful feeling of debt freedom.
We plan to pay off Loan #2 by March 4, 2016. This finishes our repayment journey four months earlier than the balloon due date of this loan.
This is how we will eliminate interest in 2016: For the $30K note, we will prepay the 2016 interest in December 2015, so there will be no 2016 interest, putting us in a position of never again owing interest. That means we will have a full year in 2016 without any interest expense for our business or personal finances. Shazam!
The Future without Debt
We are only five months away from becoming debt-free, a situation that has required decades to accomplish. I have spent many hours in conversations with my wife, analyzing numbers with apps, websites and spreadsheets, mapping a strategy to get to this point as efficiently as possible.
There are no shortcuts when it comes to getting out of debt.
I wonder how life will change once the burden of debt is removed.
Will we simply find a new focus that is more important? I certainly hope so. It is bound to be more pleasant than owing money. Aristotle wrote that nature abhors a vacuum; we will fill our new found time with travel, friends, family, music, and community.
I know that the benefits are worth the years of effort required with saving and becoming debt-free. Our cash flow has improved, the debt obligations nearly eliminated, and we continue to build a large bucket list fund. Life is looking good today and even better in a few short months!
How about you? Do you have a lot or a little remaining debt? Do you spend much time concerned about your debt? Do you know the precise date the last debt will be paid in full?
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