Hiking and debt

Yesterday morning, I had the pleasure of meeting up with a friend of mine for a two-hour hike in a nearby town. Just a little over three months ago, I would have been on my way to work, frustrated in traffic, on an hour plus long commute. Instead I got to catch up with my buddy outdoors on a beautiful summer day. Have to say, this retirement thing is pretty good.

As we walked along, my friend mentioned that he was happy that his son was able to get a car loan without a co-signer. His son, who’s in his very early 20’s, has been very responsible with debt and loans over the past two years and that’s resulted in a pretty good credit score for someone his age. His good financial habits early on are already paying off for him.

It got me thinking about the last time I had a car payment and gave me the idea for today’s post. How did we deal with our debt over time?

Before getting married, I was the typical person racking up debt along the way. Having graduated from college, I had some school loan debt. Picked up a credit card or two because that was the thing to do. Roomed with friends and started purchasing stuff for the house. I also began to learn that owning a car was much more expensive than just putting gas into it each week. Essentially, I was living beyond my means because I wanted everything now.

Of course, the bills started to mount up. At some point I recall it causing anxiety. Did I have enough in the bank to cover the bills? When would I get paid next? Can I work extra overtime this week? When did I need to mail the checks to avoid the late fee? It was stressful.

By the time I was in my mid-twenties, that had changed. While my earnings were increasing nicely due to the industry at the time, I began to realize that I needed to break the cycle if I wanted to do other things with my money. This is the point in my life that I became friends with someone from work that was making a “killing” with his broker (this whole story will be a post in the future of what not to do with your investment dollars!). However, it led to something good, because if I wanted to get rich following my friend, I needed some money in the bank to pass along to the broker.

By trying to emulate my friend, I had to curtail spending on credit cards and get them paid off as quickly as possible. This was the “good” that happened because generally, I was able to get it under control and start putting money away.

Just a few years later, my wife and I fell into the same credit card rut when we got married. Alas, my broker wasn’t really that good at looking out for me as much as recommending the next hot tip. When it came time to start paying for the wedding, much of it had to go onto credit cards as none of my stock investments were worth near as much as I dreamed they would be.

But the good news is, together, my wife and I were able to focus on our credit cards after the honeymoon and get rid of the debt.

That, in turn, got us to thinking about our other debt. We shifted our attention to our student loans that we both brought into our marriage. First, we set our sights on my loans which were smaller by using some of the now free cashflow from the credit card debt. When those loans were history, using the freed up cashflow from credit cards and now my old student loans, the focus became wiping out her debt.

By this point we were both committed to using credit more judiciously. Ever since, we’ve paid our credit cards off in full each month. In part, it also allowed us to increase contributions to our retirement plans and add to the college funds for our kids.

This brings me back to my walk yesterday. As my buddy and I were talking about the new car loan his son just took out, I told him how much I enjoy not having a car payment. My friend was stunned to learn that I haven’t made a payment on my car in over 8 years. Yes, it’s old (2007) and now has over 250,000 miles, but it’s in great condition and really doesn’t cost that much each year. Sure, it’s a little more for maintenance now, but insurance and excise taxes each year are pretty cheap compared to a new car.

My son recently said he remembered when I originally took out the car loan. He recalled me telling him that while we had the money in investments to pay for the car in cash, we took the car loan because the interest rate was really low. I’m so happy that some of these little conversations we’ve had about money and finances have apparently stuck with our kids.

The last loan we paid off was the biggest… the mortgage. I think the question of paying off your mortgage early is about personal choice. Mathematically, it makes sense to keep it as long as you can. Psychologically, it can provide great emotional comfort to have it gone as you approach retirement knowing that you don’t need as much in assets to cover your monthly expenses. We went with the emotional response and began to whittle it down.

Our last mortgage payment was in December 2014. With that payment gone, it allowed us to aggressively build up our cash reserve buffer in anticipation of an early retirement.

While we may not have followed the best path towards retirement with our debt over the years, it is our path and it worked out just fine. Even though we made mistakes along the way, it wasn’t catastrophic and you can recover. Others may be really good at avoiding credit card and car loan debt or keeping their mortgage to the end and that’s ok. Everyone will approach this differently, but if you can learn from some of my mistakes and profit along the way… then good for you!

Have you made debt mistakes along the way? What did you do to fix the situation? Let us know in the comments below. 

In the meantime, I look forward to my hike next week to see where it leads…

Thanks for stopping by.


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