For an audio version of this post, please click on the speaker icon (top left).
After my divorce I began stockpiling money to try and create a war chest in case there was a judgement against me to pay my ex for her frivolous civil lawsuit.
As previously discussed after a week of hearings before a jury, my ex was awarded a grand total of $0.00. After paying the balance of my legal fees, I found myself with close to $130,000 to do as I pleased now that I was free and clear of my ex and her unscrupulous lawyer.
I had two paths that lay in front of me:
I could revert back to my former self and treat myself to an extravagant purchase (which I could have easily justified like I have in the past by saying I went through hell and I deserve to reward myself).
Or I could take the path less traveled (and really one I never stepped foot on before) and set myself up for future financial success.
I chose the latter.
I began an aggressive campaign to dig myself out of debt. At this point I had three anchors weighing me down in my quest to financial freedom.
My primary home carried two mortgages (1st mortgage ($340k) at 30 yr 5.625% fixed and 2nd mortgage ($120k) at 15 year 7.95% fixed) and the balance of my medical student loans (approximately $108k at around 3%)
My plan of attack was to concentrate on the highest interest rate debt (2nd mortgage) first. I essentially paid the balance off with one fell swoop from the war chest I had accumulated.
I will tell you the feeling was incredible. To have a large chunk of my debt disappear like that gave me a high far more than a material purchase ever could.
It is true what they say about the hedonic treadmill. Materialistic things quickly lose their appeal as the shine wears off and your mind adapts to each new level of luxury.
But paying off debt was different. Instead of the endorphin rush wearing down with time, it actually created a desire to continue to attack my debt.
There were so many things (including interest generated from previous debt) in my past that quickly devoured any money I made and increased the load of debt I had to bear.
But now my mindset was changed. I became debt averse.
I didn’t want my banks or lenders to be rich. No, I wanted to be wealthy.
With my new found resolve, I proceeded to use all my available positive cash flow to help quash the negative cash flow that had been a major part of my life.
My debt snowball had begun and it was rapidly gaining momentum. With money that had been earmarked for the 2nd mortgage payment now available to deploy elsewhere I decided to tackle the dreaded medical school loan.
Astute readers may ponder why I would choose to first attack the debt with the lower face value interest rate.
My rationale was that when factoring the mortgage interest rate tax deduction on the primary mortgage this brought it very close to the same effective tax rate.
Given my income, I could not take advantage of a tax deduction on my student loan interest (in 2014 the phase out occurred with an adjusted gross income of $75k for single filers/$155k for joint).
A minor consideration was also the fact that student loans typically cannot be discharged in bankruptcy.
I eventually paid this financial anchor on May 22, 2014 (I was so proud of this accomplishment that I posted it on my Facebook page).
What was so significant about this date was that it was exactly 17 years to the day that I graduated medical school and received an MD, and almost 22 years when I first became indentured to Sallie Mae, et all.
With the primary home mortgage now in my sights I rapidly saw the outstanding balance diminish.
And then it happened.
On April 16, 2015 the moment I had long been waiting for occurred. That magical zero appeared and I knew at that very moment I owned every blade of grass on my property.
I had been calling myself a homeowner for years, but prior to this was it really me who owned the property?
I went back to the original amortization schedule and by paying off the mortgage 20 1/2 years earlier than scheduled, I worked out that the interest I saved totaled $206k (that same amortization schedule showed that at year 9.5 of my mortgage repayment, I had already paid $180k of interest).
Even mowing the lawn felt different and gave me a renewed sense of accomplishment after the mortgage was paid off.
To this day, years later, it still feels wonderful to pull up into the house with the financial peace of mind that occurs when you have a paid off home.
Breaking free never felt so good. A week shy of my 44th birthday and, just 4 years after a brutal and devastating divorce I actually became debt free.
Now any cash flow coming to me was mine to deploy as I saw fit, and not already claimed by any lenders.
Now the internet is full of debate on whether one should pay off the mortgage early or instead invest that extra money. It all comes down to personal preference.
I would have definitely come out ahead by keeping my mortgage and instead investing all that money into a broad stock index fund given the huge bull run we experienced but this is using the retroscope where hindsight is always 20/20.
Even though I left money on the table by doing what I did, I still have no regrets paying off the mortgage and medical student loan.
There is untold value to having financial peace of mind.
Without debt obligation, changes that have occurred in medicine such as declining reimbursements, etc do not have the impact they would have had on me.
But What About Losing the Mortgage Interest Tax Deduction??!?!?!
I know some will argue that I lost a tax deduction (mortgage interest) by paying off my property fully.
As Jim Dahle from White Coat Investor would say, don’t let the Tax Tail wag the dog.
Even at the highest tax bracket you are essentially paying someone $1.00 in interest to get back $0.396 (or in 2018 and beyond $0.37).
If you still fret about losing this deduction I will make a deal with you: Fully pay off your mortgage (honestly even if you don’t it’s okay by me (that’s just the kind of guy I am)) and then for every $1000 you send me I will write a check to you for $396 (which is very generous considering that is the pre-2018 highest tax bracket deduction possible).
And unlike the government that has currently capped the amount of interest you can deduct I have no problem whatsoever making this valid for any amount.
Superpower take home points:
- Get off the hedonic treadmill and get more of an endorphin rush by following a Debt Snowball plan.
- As you see your debt diminish the increased cashflow created by not servicing these debts can be applied to other debts quickly creating a cascade of debt paydown
- Don’t underestimate the value of peace of mind of being debt free when considering to use available funds to invest versus debt paydown.
- With no debt obligations tying you down you can capitalize on opportunities and not be forced to settle for a job you may not want to be in.
- Although 30 year mortgages are tempting by allowing you to buy a bigger home with smaller monthly payments, I highly advise getting a 15 yr mortgage at the longest.
- Although my mortgage ended up being paid even earlier than that, if I was on the 15 year time schedule, I would have qualified for a lower initial interest rate as banks offer higher interest rates on the longer mortgages.
- It is highly advisable to try and time your mortgage so that even at the longest time period it will be paid off by the time you anticipate retirement
- The less fixed expenses you have in retirement, the more adaptable you are financially to weather financial downturns and prolong your retirement savings.
- Don’t let the Tax Tail Wag the Dog. Keeping a mortgage just to claim a tax deduction on the interest paid is essentially getting a 63% loss (best case scenario) on your money.
(And don’t forget to subscribe to this blog to be always notified of new posts)
NOTE: The website XRAYVSN contains affiliate links and thus receives compensation whenever a purchase through these links is made (at no further cost to you). As an Amazon Associate I earn from qualifying purchases. Although these proceeds help keep this site going they do not have any bearing on the reviews of any products I endorse which are from my own honest experiences. Thank you- XRAYVSN
I completely agree about the psychological benefits of paying off debt. These intangible benefits are often dismissed as not being real, but I assure you they are. Even though it often would be mathematically better to keep debt and invest any excess capital, the peace of mind that comes from being debt free is hard to argue with.
Congratulations on acquiring all your new blades of grass. May you enjoy cutting them for years to come.
Thanks Ray for the comment. Peace of mind is an undervalued return for sure and for me trumps monetary gain.
Absolutely agree! I took a deep breath and paid off the last of my mortgage earlier this year….it is absolutely freeing.
I ran the numbers through a mortgage calculator, and in paying off my mortgage in 20 months rather than 30 years, I saved $292,495 in interest. That isn’t a trivial sum.
Further, it give you more options….options to work less, save more, just to say “no” to things you don’t want to do.
Congratulations on paying off the mortgage! It’s a huge achievement. Definitely opens a much larger option choice and any unexpected issues that may arise are easier to handle if you don’t have to worry about a large mortgage payment. Thanks for stopping by!
Congratulations on owning every blade of grass! I’ve never once regretted paying off debt, even if I could have theoretically earned more investing. You can’t put a price on freedom.
Thanks SHS. It’s absolutely true, freedom is worth much more than a potential arbitrage in investment gain. I often put it this way. If you have a fully paid off home, would you take a line of credit or another mortgage and use the proceeds to invest? I really doubt anyone who finished paying off a mortgage would want to reacquire it. That’s telling about the mental benefit of a fully paid off home. Thanks for stopping by.
Congrats on paying off all your debts. Must feel awesome. Nice house. In Silicon Valley, that would be worth about $6 million.
Thank you so much. You won’t believe what I got away in paying for it (I love geographic arbitrage). Have a story on its purchase etc that will be the subject of a post sometime in the future 🙂
Congrats on being debt free! Must be a great feeling. With the next tax changes, I think there’s less incentive to keep around a mortgage for the interest deduction. Sure you could potentially invest any extra payments, but there is still risk with that.
We’re on the last leg of our debt payoff marathon. My student loans are gone, we have no credit card debt or car loans. Just the mortgage. Looking forward to owning every blade of grass as well!
Thanks SRGO. I agree the tax laws are going to make some mortgage interest deductions disappear completely. Congrats on being on the last leg of your payoff. The student loans are huge to get rid of. And with the debt snowball you have created I don’t think your mortgage will stand a chance when you concentrate all your efforts on it. I have absolutely no regret in my choice to pay it off and I’m sure you will feel the same way.
People who pay off all their debt, never go back and reborrow the mortgage to invest it for higher interest because they decided the old way was better. That should tell you alot. If you have done both, you now know which is better. And you rarely go back. For the rest of them, it’s just theory and speculation. Become debt free, you can always go back in debt if you feel it was the better choice. Pick up a copy of The Doctors Guide to Eliminating Debt and stop trying to manage your debt and eliminate it instead. Great… Read more »
Thanks Cory. I use that rationale all the time as well. How many people who have paid their mortgage go and take out a new mortgage so they can invest in the market? I have never heard anyone doing it and if there are some, I believe they would be in the incredible minority. Thanks for stopping by and leaving a comment 🙂
Personal debt is stifling. Get rid of it ASAP. Those who keep pontificating about opportunity costs of investing it rather than paying off a mortgage have not invested long enough outside of a bull market.
You can control your debt but good luck with controlling the markets and most investments really.
When it is debt that others pay for me, now that’s another story.
I completely agree 100%. On the debt side of the equation it is always better to be the lender rather than the borrower. Paying off debt you can exactly calculate a guaranteed return on your money. Otherwise it is speculation. Thanks for the comment.
I will be requiring more photos and a detailed explanation of that friggin waterfall you seem to have on your property. That looks awesome.
Thank you so much. I actually have a post I plan on writing on the very nature of how I got to come to own this property and the events that resulted because of it. But yes the reason why I bought the property/house was a pretty spectacular 45-50 ft waterfall about 200 feet from the back of my house (can see the top 1/3 of the waterfall from the house). There is actually a smaller waterfall (8 ft) that’s sort of hidden but to the left of the big one).
I went though a divorce about 4 years ago (and since remarried), while mine was not as brutal as yours, I was still married to a spender and we made poor financial decisions together. As I wanted financial independence by paying off debt, she didn’t. She still wanted to be a spender. Since the divorce and finding somebody that is a better fit for me spiritually and financially, my situation has drastically improved as did yours. House is not paid off yet, but will be in 2 years. It’s amazing what can change in a few years if you put… Read more »
Hey Mark. Thank you for stopping by. I am sorry you had to go through a divorce but sounds like you are also in a better place now because of it. I think the biggest chance for financial success is having a partner on the same financial page. Looks come and go but personality is for life. If you have non-compatible personalities (financial or otherwise) you will always be fighting an uphill battle (like Sisyphus). Keep at it and at the end of 2 years you will definitely love the way you feel after that mortgage has disappeared. Congrats.
Great story and a great ending!! And 4 years to kill all that…is wow! Is that really your house? With the waterfall? Man a 7.5% interest on the second mortgage, wtf! That’s so high by today standards.
Thanks Lilly! Yes, that officially is my house (have a pretty remarkable story about that but I am saving that for a later post) 🙂 And yes, there are actually 2 natural waterfalls in my backyard (the big one which you see is 45-50 ft tall and can be seen from my house (its about 200 feet away). The smaller 6-8 ft one is to the left of the big one in the picture (where that smaller deck is). Yeah, I think a lot of people got spoiled by the incredibly low interest rate environment that we have been in… Read more »
Great post! You definitely rose above all that you went through with the divorce and made smart money decisions. Truly Inspiring!
Thank you so much. Yes I credit my financial journey as trial by fire to FIRE. I honestly don’t think I would have embraced this financial culture until I lost it all and was looking up from the abyss. I think being scared starting from almost scratch (actually if count all the debt the judge gave me and all the assets that went to my ex I was actually quite in the negative) and getting older I had to act fast or would never be able to retire traditional age let alone early. Thanks for the comment as always 🙂… Read more »
You have a beautiful home and congrats on the payoff. I have a long way to go until mines is paid off. I completely agree that many people are misled by the interest deduction. It should not be a reason to avoid paying off a home.
Thank you so much for the kind words. Well I wish you success on paying off your mortgage. Even if it seems a long way off, every extra dollar you put into it accelerates the process and saves you a substantial amount on the tail end with interest saved. Thanks for the comment
[…] when you live below your means. Xrayvsn focused his savings to pay off his mortgage. His post Every Blade of Grass details his decision to become debt […]
Really appreciate the mention on your blog. Thanks for helping spread my word.
Nice. It does give a new meaning when mowing the lawn and the house is yours. My brother went through an ugly divorce. I don’t envy you for that. I know how brutal that is.
Thanks for stopping by and commenting. Really appreciate it. Sorry your brother went through a similar ugly divorce. I wouldn’t wish it on my worst enemies. I hope he is able to regroup and pull himself up from the situation. It felt bleak in the beginning for me but slowly you claw your way back to normalcy and then finally happiness will be around the corner
I am very much looking forward to being debt free as well….it will come sooner rather than later! I know that so many people argue that you can make more by investing, but as you said, you can only come to this conclusion in hindsight. Congrats on being a true homeowner and debt free!
Thank you for the compliment. I wish you much success in your journey to being debt free as well. The debt snowball really does work and if you persevere you can definitely eliminate your mortgage far earlier than your term (and saving you a lot of interest in the process)
“But What About Losing the Mortgage Interest Tax Deduction??!?!?!”
I never understood why people get so hung up on this – all it does is effectively lower your interest rate. You’re not “making” money using it. Although I appreciate your offer of a $396 return for every $1000 I send you.
Can you believe it but I haven’t received a single check yet? I think I may stop being generous if this keeps up. 🙂 Thanks for stopping by and appreciate the comment
Congratulations on making that beautiful property 100% yours! I couldn’t agree more with the psychological benefits of becoming mortgage-free. Once your living expenses are condensed to basically food, insurance, taxes, and utilities, it’s amazing what lifestyle freedom is available. We paid our house off as soon as we could after purchasing it, and have never looked back. I love your takedown of the Mortgage Interest Tax Deduction, too. I’ve never understood why someone would use that as an argument to keep a mortgage. Particularly since it’s really of no benefit unless your itemized expenses exceed the standard deduction. In 2017,… Read more »
Thank you so much for stopping by and leaving a very detailed comment. Congratulations on paying off your mortgage as well. You are spot on about the freedom it creates when recurring debt is eliminated from your budget. Good points about how large a mortgage is needed just to have a deduction over the standard one. Thanks for stopping by and really appreciate the comment
When Dave Ramsey went bankrupt I was sitting on three mortgages. Paying them off felt wonderful, and doubly wonderful after two are done with all three monthly payments converging on the final target. Sure, you can make a case for the financial prudence of carrying debt, but quantifying risk exposure was hard enough to make me swear off debt entirely. Congratulations on your progress and I can attest from personal experience that FIRE will feel very good.
Thank you for stopping by and the comment. There are definitely two lines of thought, carry good debt or be debt free. It’s a personal choice for sure and because of the major bull run we had in the stock market a lot of people probably came out ahead carrying good debt. But I have never second guessed my choice to pay off my last debt (mortgage) and become debt free. All the money I had been putting towards the mortgage has now essentially helped me turbocharge my investments. Here’s to you knocking out that final target 🙂
Those pictures of your property are absolutely gorgeous. Thank you for breaking down exactly how you accomplished this, and why you made the decisions to pay off certain debt first. This post is inspiring, in that someone who wasn’t a natural saver, was able to change their ways.
First thank you for stopping by and commenting (by far my favorite part of blogging is the interaction) and of course the kind words. I actually have a really cool story about the property and how I it came about (wrote the post but bc I have written so much ahead of schedule it is scheduled for around Christmas time I believe). It is hard to change ways especially when you didn’t think you were doing anything wrong in the first place (with no financial education it was easy to think that way) but thanks to blogs and books it… Read more »
wow, first of all i am super impressed that you have that many posts lined up ready to go! And secondly, I really have to commend you on being able to change your ways as an adult. I am yet to see anyone actually do this in person (become a saver that wasn’t a saver already, or taught before they joined the workforce). Most people reading posts online and doing research like you did, are doing so because they are trying to become even better savers. Most people would see the amount of money you had in front of you,… Read more »
Couldn’t agree more. The psych benefits of getting that off your shoulders is huge. It’s making a good decision for the future that also rewards You in the now.
Thanks for stopping by and leaving a comment. This was one of those decisions I have made in my life that I think really pointed me in the right direction. It really got the ball rolling and started my love of all things finance.