Readers Share Thoughts on Life After Debt

Posted by Madison on August 1, 2012

Amanda recently detailed The Aftermath of Debt Payoff in which she and her husband entered the “non-mortgage, debt-free” stage of life after paying off all of their student loans and car loan. Congrats Amanda!

But they haven’t quite figured out where to go next. With their financial situation drastically changed, readers had lots of great input for her! Here are some of the highlights.

What Happens After You Pay Off Your Debt?

A Better Way of Life. I’m 38, and my wife and I have been debt-free since 2005 when we paid off our house. It definitely felt like a transition to a new and better way of life, and it still does. The nice thing about dedicating a few years of your life to debt payoff is that the frugal habits you develop tend to stick with you into the debtless phase of life, supercharging your ability to accumulate wealth and/or work less to improve your quality of life.

It’s fun to look at our yearly spending report in Mint and have the top 3 categories be 1) groceries, 2) tithe, 3) auto fuel. After 7 years, the novelty of having no debt payments still hasn’t worn off! – Bill F.

Retirement and Travel. My wife and I are in about the same position. We’re a few years from kids so we’ve decided to throw as much at Roth IRA’s and 401K’s as possible with the goal of being able to stop investing by the time our child is around 10. By that point we’ll have even more discretionary income and can use it for more travel when our child will remember it. – Nick H.

Future Kids. Do you plan on having children? If so, then opening a 529 plan now might be a good idea. I opened one for my son….then he was born about 5 years later. If children are not in your future, then perhaps a regular IRA. Certainly saving for future big ticket items like a vehicle is a good idea too! – Sunk Costs Are Irrelevant

Real Estate Investing. We’re in accumulation mode. We just paid off my student loans so our only outstanding debt is the mortgage, which we don’t think is worthwhile to pay off early. We think we can get a higher return through buying investments right now than we can by paying off our mortgage. The economy is doing bad enough that there are a lot of really great deals to be had right now. This spring we researched real estate. We live in Texas, so while the housing market didn’t get down as much as a lot of other places, given the strength of the Texas economy relative to other locations, it’s in a position to grow more than most. We are using the cash we’ve accumulated to put 20% down on two rental properties (one we’re buying from an estate; one is a short sale). They’re both phenomenal deals and we’re only able to take advantage of them because of the amount of cash we have on hand. Real estate is appealing in general given that it is both a tangible asset and an income producing business. – Rebecca

Creating Passive Income. I feel exactly the same way, and have felt that way ever since my wife and I paid off our mortgage over a year ago. We’ve been putting our extra cash into a savings account for most of that time, waiting for the balance to get substantial enough for us to take some off the table and start purchasing some income-producing investments. I’ve been following a lot of dividend investing blogs as of late because I personally like the idea of that strategy to generate passive income for life. But it’s definitely much more complicated and uncertain to try to invest for the long term than it is to aggressively pay off debt.

By the way, I would strongly recommend paying off your mortgage as quickly as you can, as long as you plan to remain in your current house for more than a short while. In my opinion it’s best to be free of as many monthly obligations as possible, just in case one or both of you lose your jobs. If you don’t [have] a house payment, it’s a lot easier to make ends meet in lean times. Set a really aggressive goal, like 2-3 years, and see if you can knock it out. Once it’s gone, trust me, you’ll thank yourself. – Executioner

Invest the Money. Assuming that you have a mortgage of about 4% (and if not, then refinance), would you rather earn a guaranteed 4% return on your money by paying down the mortgage or a higher (though variable, but likely averaging higher over the long term) rate of return by investing, maybe in something simple like the SP500 index or dividend-paying stocks? Also consider that your 4% mortgage is really only costing you about 2.65% considering your ability to write off the mortgage interest on your taxes and assuming a 33% tax bracket. You absolutely can do better investing than 2.65% averaged over about 10 years.

On the other hand, if you were a very conservative person, you might feel more comfortable paying down the mortgage. It’s still a positive return and it does give many people peace of mind. – Managing Partner

Emergency Fund. After I paid off my debt I started the “house fund” Got the house and now we are it has become the “emergency fund” (we had 5 months saved in the emergency fund before we got the house) – Katie C.

Talking About It. Me and husband are in the same boat as you guys and while we love it, we’re not sure where to go either. We are fully funding our IRAs, have emergency fund, etc. We also have paid off our mortgage as well so we have quite a bit of extra change in our pockets. But we are frugal by nature as well so we decided to invest a good sum. Seemed better than doing nothing. To be honest though, this is a great dilemma to have! I love that you decided to talk about it because most blogs don’t. – Holly

Assess the Time You’ll Be in Your Home. The next question for you is how long are you going to be in your home? If it is for a considerable amount of time then I would add to paying down some of the principal at beginning at slow pace such as $500 extra per month. If you have a short horizon (less than 5 years) remaining in your home then I would invest those funds and use them as needed when you go to market with your home. – Fowler

Save It. We’ve been in this camp for a long time. Debt free except the mortgage. We don’t really know what to do with our money other than save it. Maybe for a future rental property or down payment on a house (we’re in a townhome now). Who knows? – ayearinskirts

Private School. In my late twenties, married with a child and a home. Our only debt is a quickly-shrinking mortgage. I think I can erase it within 3 years. Then what? I hate risk and “paper” like the stock market—but I like the idea of owning a rental or a vacation home that could become homesteaded….I also need to prepare for private education costs (vs. public schools) possibly eating some of our monthly income in the next few years. – Penny Price

Estate Planning and Donations. The first thought that came to mind was saving up for kids if you plan on having them – or even if you don’t since surprises happen! Also, do you have all your estate planning done – including life insurance, which adds to your expenses? Another thing to consider is charitable donations to causes important to you. – Linda

More on Debt Elimination

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Comments to Readers Share Thoughts on Life After Debt

  1. Every once in a while, I feel like I’m in way too low an income level to read this blog. Today was one of those days.


    • Martha,

      I’m the Bill F. who paid off my house 7 years ago at age 31, and I just wanted to say, take heart! I don’t earn that much, either!

      I work as a magazine editor for a non-profit mission, and my wife has been a homemaker (no income) for the past seven years. My take-home pay has gradually risen to $2,500 a month.

      When we were newly married, we had two incomes. My wife taught grade school and earned about what I did. Not having any college debts, for six years we put the majority of my salary into paying down our mortgage. We paid off the mortgage In 2005 just four months before our first child (of four) was born, and my wife quit teaching to become a full-time homemaker.

      Being completely debt free, we have lived frugally but comfortably on my smallish paycheck ever since, even managing to save about 15% of it per year and giving away another 15% to church and charity.

      Yes, it takes some discipline–every dollar I make is pre-assigned to carefully tuned budgets in Mint. But at the same time, I have found the clarity of it very freeing. I never have to wonder, “Do I have money for that?” Instead, I occasionally get a treat when I notice something like, “Ooh, I have a bunch of money piling up in my hobby budget. What should I buy?”

      Looking back, I think there have been three major inflection points in our financial trajectory. 1) Graduating from college debt-free, 2) Marrying a spouse with a similar debt allergy, and 3) Always budgeting savings (spending significantly less than we make, no matter what the amount).

      Bill F.

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