This guest post from Lindsay is part of the Reader Stories feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.
Thank you for Get Rich Slowly.
I started reading GRS almost five years ago, and it has influenced me to:
- Ask for raises
- Seek extra income
- Use automatic savings and dedicated savings accounts
- Pay attention to interest rates
- Keep track of my spending
- Improve my credit rating, and
- Reduce my expenses
Five years ago, I had thousands in credit card debt, and I had never looked at how much I spent each month or devised a budget. I still don’t use a budget, but I check on my spending periodically and make lifestyle changes accordingly. (I only eat out a few times a month and I quit smoking, to name a couple of major money sinks that I have eliminated in reaction to seeing my monthly spending). I also married a saver; good money management was an important quality to me in a future mate.
Five years later, I’m free of consumer debt. I get paid by a credit card (points). I have emergency savings to last six months and an emergency plan, and I save over 25% of my income. I’ve increased my automatic savings with each raise I got over the years, rather than allowing myself the option of lifestyle inflation.
Today is the first payday I have ever experienced where I do not feel like I just squeaked by, and I am not worried about making things stretch until next payday. It’s something I’ve never felt before, and it’s so liberating.
I do have some “good” debt. I have a mortgage (my husband saved up the down payment before our marriage), and I have no intention of paying it off early! We have a transferable 4.75% interest rate, and this is not our “forever home.” While paying off student loans wasn’t a priority while I was trying to become financially stable, I’ve recently begun to snowball them.
Thank you for helping me get to this place. I couldn’t have done it without you.
J.D.’s note: It’s stories like this that keep me going at GRS, even when sometimes I’m ready to move on to something else. Thanks, Lindsay.
This article is about Reader Stories, The Best of Get Rich Slowly
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Congrats! Keep up the good work!
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Good on you to not pay off your mortgage. So many people just don’t get how much off that leaves you. I have two friends who ha drheor houses foreclosed due to divorce. Both of them would rather have the money in the bank right now than in their foreclosed property that the bank now owns anyway.
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Congrats Lindsay! Jason, as I am new to the GRS family, could you explain why paying off the mortgage may not be the way to go? Thanks
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Hi Chris,
I think Jason means that, as the journey goes, you could have paid off 80% of your house, but then if you can’t make payments anymore, the bank can still take the house and at that point, you’d rather have the cash than an *almost* paid for house. Of course, having it fully paid off is great, but make sure the rest of your finances are in order first!
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If your interest rate is low enough on your mortgage, some people will argue that you’ll get a better return for your money to invest the extra than to pay off your house early.
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Or have a paid off house that the bank couldn’t foreclose on
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Even if your house is paid off, failure to pay property taxes can result in your house being ‘foreclosed’. I don’t know if that’s the proper word since it’s usually the county rather than the bank, but there were quite a few stories during the housing boom of senior citizens who lost their paid-off houses because the skyrocketing values increased their tax assessments to the point that they couldn’t afford the property taxes.
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Nice story until the part about student loans being “good debt.” It is so sad how the higher ed industry has brainwashed the populace with this notion.
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It depends on how much she owes and her interest rate. For example, I owe almost $11k at 3.5% and if I pay on time for one more year, that would go down to 2.5%. Now that is low and so it is “good debt” because I can invest and earn more than I pay in interest.
Also, the op said she is now snowballing the student loans, so clearly she still wants them gone quickly but they were good when she had lots of credit card debt and no savings.
I agree that people shouldn’t consider and debt GOOD but some of it makes more sense to pay slowly. Student loans, assuming you took on a reasonable amount at a low rate, fall into that category.
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Actually, I’d say whether or not a student loan is “good” debt depends on the quality of education received and potential return on investment, not the interest rate or other loan terms.
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Lawyerette, I agree, I just kind of took that part for granted (mine was for an engr degree) but I suppose it should be said, so thanks for adding it on!
First: Your education should improve your life and income
Second: If the loans are low rate and you have higher rate and worse (ie, CC) debt, pay that first.
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I also question whether student loans are “good debt.” Any debt that can’t be discharged in bankruptcy, where the government can even take your social security benefits to repay the debt, shouldn’t be classified as “good debt.” I’m not saying that nobody should ever take out a student loan, but you should carefully do a risk vs. rewards analysis and borrow the least amount possible.
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Student loan debt CAN be good debt if it allows you to get your degree that otherwise you would not have received, and that degree enables you to earn more income. Of course, there are exceptions where you borrow too much and get a job that pays too little; but by and large the statistics show that getting your degree is a fantastic investment and worth leveraging with student loans (which have tax deductible interest and low rates).
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congrats on your success! Keep it up
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Can anyone help me understand what good credit card points are? I hear a lot of people using them, but I don’t know much about these programs.
Don’t they just give you something else to keep track of? Or do you find them really beneficial — and how?
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Most credit cards give you a point for every dollar you spend, but every company has slightly different rules. The points are accumulated automatically, so you don’t have to do anything other than spend to earn them. You can turn them in for gift cards, products, or even cash, though the gift cards usually require you to surrender less points for the same denomination.
If you’re already in the habit of paying your credit card balance every month, it is basically just a free bonus. If it would be hard for you to stay on top of the bill every month, the interest will eat any rewards you may have earned and it won’t be worth it.
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CC Points are nebulous… and I avoid them.
So instead of these weird “points”, I get 1% cash back on my CC purchases. So periodically I get a check in the mail for $50.00 from the CC company. It takes obviously $5,000.00 of charges which could take months. I pay my balance on time every month.
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Good for you, Lindsay! Especially marrying someone with similar financial goals. I wish I’d been thinking that way when I got married, though I was definitely thinking that way when I got divorced!
Keep up the momentum! Congratulations!
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congrat! great job getting rid of the cc debt. mortgage is not good debt either, it’s better than cc debt and student loan though.
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It seems odd that both of these things could be true:
1) “I have emergency savings to last six months and an emergency plan, and I save over 25% of my income.”
2) “Today is the first payday I have ever experienced where I do not feel like I just squeaked by, and I am not worried about making things stretch until next payday.”
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I was confused about that too…
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I don’t see those two statements being a problem.
My husband and I are saving a lot from our paychecks. We feel like we’re living “paycheck to paycheck,” but in reality, we have over 6 months of living expenses saved in a bank account we rarely touch.
This could be the first paycheck after all the writer’s financial goals have been met. Reaching a goal provides relief!
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I agree. I feel like I’m living paycheck to paycheck because I refuse to spend my emergency fund until a true emergency exists.
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First – I’d like to say congrats to you on your financial success. I just have one question, and Please forgive me for asking, as I am new to the GRS Family. But could you, Jason, or someone else on GRS explain to me why paying off your mortgage early is not a good thing? Especially when so many other financial guru’s say otherwise.
My wife & I are at a crossroads with this one, as we know that we are not going to stay in our current house in retirement, much less our current state, and sometimes feel saving the money to purchase a home elsewhere seems better at times.
Thanks in advance.
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Paying off your mortgage is usually a good thing, but some people believe that the money is better invested in the stock market long term. Strictly speaking they are correct according to the numbers, but peace of mind is worth something, too.
The other case when paying off your mortgage early may not be wise is if you anticipate cash flow difficulties with paying your mortgage at some point in the future. In that case, you are better off saving the money and paying off the mortgage all at once when you have enough, and then you won’t have a mortgage at all.
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I don’t get the paying off the mortgage is a bad idea.
I paid the mortgage and the peace of mind I have daily because of it, makes it all worth while.
And I don’t get the idea that I now can’t get access to money because it’s now spent in paying off my house. I have an equity LOC. It’s there if I need it, but I’ve never even come close to using it.
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Thanks for the clearification Milly & thanks for the Link Diane. Great Article. I see the picture from the other side now
Thanks for everyones responses.
Hats off to everyone on GRS
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Encouraging post Lindsay, glad to see you financial dreams are coming through a little at a time.
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Job well done!!! So funny to read this because I too have been following GRS for 4-5 years and my name happens to be Lindsay. Just a week ago my husband paid off our last “bad” debt – credit card at 10%. We still have a mortagage and I have student loans that we are snowballing. I love GRS and the readers stories!!!
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To everyone wondering about paying off a mortgage early, you can check out Ric Edelman’s article –
http://www.ricedelman.com/cs/education/article?articleId=232&titleParam=11%20Great%20Reasons%20to%20Carry%20a%20Big,%20Long%20Mortgage
Lots of food for thought there.
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My husband and I paid off our mortgage in 2007 with 13 years remaining on our 15 year mortgage. We cashed in half a risky mutual fund that had increased in value tremendously since 2003. within 2 months of cashing in the fund, the fund’s value went down and only recently is at the price we cashed it out at. Yes, we had to pay more taxes that year but it was so worth it. Also, by paying off the loan early we saved $35,000 from the interest we would have paid over the 13 years. The mortgage tax write-off is not that great unless you are a high income earner. It has made the last four years less stressful and we continue to save that money that would have gone toward the mortgage.
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Melinda – I think this is the best (read – least risky) way to pay off a mortgage. The trouble is, for most people, before they can pay OFF a mortgage they have to pay DOWN the mortgage. Having a paid-off house decreases your risk by improving your cashflow. Having an almost-paid-off house doesn’t improve your cashflow, and doesn’t decrease your risk versus having money in the bank. Having a LOC as mike mentioned can alleviate some of this risk, but a bank can close your access to your LOC at any time so I wouldn’t rely on it.
Takeaway message – pay off your house in a lump sum, or at least have access to other cash in the event of a job loss or emergency.
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Surely an almost paid off mortgage could improve your cashflow? Because you can opt to either reduce the term, or reduce your monthly payment as a result of overpayments made?
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Thanks for posting that link, Diane. Very thought-provoking. I’d love to know what Tyler or JD think…
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OMG, I can’t believe I wasted the few minutes of my life to read that. I’ll never get that time back.
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Assuming you’re referring to the link I offered, you won’t get your money back either, should you chose to prepay your mortgage and then need cash to pay for something else.
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Interesting article! I used to be the same way about my spending… you need to keep track of every dollar!
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I don’t know why anyone would want to badmouth that story. Anybody that turns their life around and climbs out of debt should be applauded. My hat’s off to you Lindsay.
Riley
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Meh, bit of a throwaway post for me. Just a link to various GRS articles, some confusing statements (already pointed out by Tyler K) and no real new information or ideas.
I think there are some really wonky ideas in the post. On balance, not paying off the mortgage might be a better option for the author, but I’m not sure it’s such a great option that it deserves an exclamation (!) like it’s the no. 1 financial strategy.
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It’s true that this post didn’t offer much value, I’m glad Lindsay was successful, but she didn’t really say how, she didn’t give any details on what she did and how it worked for her beyond “I only eat out a few times a month and I quit smoking” which I feel a lot of the country have done since the start of the recession, so it didn’t have any substance. I could have found those articles without the links, because they’re on this site we’re all already reading. I usually look forward to the reader stories, and this was slightly underwhelming.
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Folks, not all reader stories have take-aways. Now and then I like to share one that just says, “Hey! Here’s what I managed to do!” In this case, I liked how Lindsay’s story tied in to the site’s five-year anniversary. And, of course, Lindsay didn’t add the links — I did. Because I edited this article about a month ago, it never occurred to me that I’d have a big ol’ links post the Friday before. If I’d made the connection, I would’ve killed the links.
So, don’t pick on Lindsay. Praise her for her accomplishments. Pick on me if you’re going to pick on somebody.
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Totally understand why you posted this JD, I don’t doubt that this post had a lot of meaning for you. I guess the thing I was saying was this post would have been heaps better if there was even one tiny tip or explanation of how this was achieved. To quote another blog (I think you may know it
). the post kind of reads “Look what I did! You want to do it too? OK, go be awesome”. Right, but how? That was the missing ingredient for me.
PS – I have to say that the responsiveness and patience that you show your reader feedback is what really sets this blog apart from all others.
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Point taken, Marcella (and everyone else). I was well-aware that this story lacked tips (it was originally just an e-mail to me alone to share what happened), but chose to post it anyhow. In the future, I’ll be sure that if I choose to promote an e-mail to a reader story, there’s a concrete takeaway.
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Sadly, I have to agree. Links are not content. I was quite excited about Lindsay’s progress and was eager to find out how the lessons she gleaned from GRS changed her life. I also think a prime opportunity was missed to engage new readers. How!? What was the hardest part of her journey? What did she tackle first? etc.
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Which lender originated the transferable mortgage? At least in the US market, ETrade was the only lender I knew with this product, and I think it was (unfortunately) discontinued a few years ago.
In the US, one side effect of nearly all standard loans being bought and/or backed by the government is a lack of differentiation among mortgage products. Lenders want to originate what they can sell, and at least as of a few years ago, the largest secondary purchaser wasn’t interested in transferable mortgages.
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I don’t need a takeaway, I liked the story and it’s always nice to hear success stories. I’m at the 2.5 year mark and I can’t even think past the next 6 months. This is great.
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I appreciate this entry very much. Not only is it clear and authentic, it’s a realistic thing for me to aspire to. While I love some of the posts from people at very high stages of financial independence, those are so far from my present situation that it’s important to intersperse them with posts like this one.
I also have a question – what defines and delimits “consumer debt”? Is it just credit card debt? It sounds like student loan debt is in its own category.
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Congrats on the success, it must feel great to have less money-related stress. Also, I like the practice of taking annual salary increases and applying them to savings.
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This post provides more questions than answers. In addition to the issues pointed out by Tyler K…
How much consumer debt did Lindsay pay off? Was this 5K or 50K? Why did it take 5 years? Did she have a specific strategy? Why not share the details? What were the difficulties?
Why is she choosing to save 25% of her salary now instead of paying off the educational loans more aggressively? Why not 10% savings and 15% toward loans? What are the interest rates on the loans? What are the principal balances?
Why is it “his” (i.e., her husband’s) down payment, but “their” house and mortgage? Did not contributing toward the down payment help her pay down the consumer debt?
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What an inspiration. I’m hoping to achieve the same goals!
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It’s becoming clear to me that Personal Finance Bloggers are running out of ideas for posts. They all seem to post the same things and some of them don’t even post anymore, they just have “guest” hosts.
It’s great to build a blogg and make good money on it but at some point people will just get tired of listening to the same advice over and over.
Nothing personal against this bloog, it’s just a general comment.
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