How We are Becoming Truly Debt Free by 2036
The Neighborhood Finance Guy writes about financial literacy topics, debt freedom, investment strategies, and retirement tips to help you make effective decisions and set S.M.A.R.T. goals with your money. The information is free but the struggle is not sold separately.
Table of Contents
Social Media Debt Free, What’s That About?
There isn’t a day that goes by without someone highlighting their debt-freedom journey which ultimately culminates into a debt-free scream, on social media. So what’s that all about?
Kim Porter of Bankrate.com reported that “as of November 2020, overall consumer debt is at $14.2 trillion. The typical American household is carrying an average personal debt of $92,727.” The overall debt figure includes credit card balances, personal loans, student loans, mortgages, and more (see table #1).
The debt-freedom journey is a very counter-culture approach to aggressively paying off what you owe, especially if you find it stressful.
To deal with that anxiety, American households are turning to new ways to avoid conspicuous spending, pay down all expenses or even earn more money to offset how fast interest fees add up.
If I was given the liberty, to be honest, a lot of people are debt traumatized. Most stories play out as financial horror stories or dramas, while I’m tuning in at the edge of my seat saying, “eessh – that was a bad call.” Being a teacher with three properties and a single-income household of 4; that’s not even math anymore. It’s just wishful thinking.
The majority of these debt issues are avoidable.
Best advice – Stop trying to do all things at once. You can’t live a life working a job “you love,” buying a home that’s too big, making payments on a home, investing in penny stocks, and quitting your job because you felt you needed more excitement.
Table 1. The Debt Factory
| Type of Debt | Debt Category | *Average Debt Balance as of 2020 | **Average Interest Rate | Avg. Total Lifetime Interest |
| Credit Card | Consumer Loan | $5,313 | 18.24% | $2,140 |
| Personal Loan | Consumer Loan | $16,458 | 17.8% – 19.9% | $5,236 |
| Auto Loan/Notes | Auto Loan | $19,703 | 4.12% New 8.70% Used | $2,572 $5,663 |
| Student Loans | Educational Loan | $38,792 | Federal Loan 2.75% – 5.30% Private Loans 3.34% – 12.99% | $17,732 $39,920 |
| Wedding Debts | Consumer Loans | Avg. $33,391 | N/A | N/A |
| Mortgage **(30-year Fixed) | Home Loans | $208,185 | 2.628% | $92,983 |
Your Debt is Someone’s Income
While I’m not a Dave Ramsey zealot aka Ramseyite, he is right that your debt merely serves as revenue for someone else. The longer you hold a balance, the more it cost you for a lifetime.
The TNFG household is on track with the Net/Max Couple plan. At our salary level, while we are contributing 100% in our employer contribution plans i.e. 401k, as well as our ROTH IRAs, Health Savings Accounts, Group Investment, and After-Tax Portfolio; we are still focused on paying down our debts in waves.
This is not the standard but it is a strategy that suits us the best. We tackle debt but we aren’t neglecting to create wealth machines. By the time, we are truly debt-free; we will be multi-millionaires and ready to retire after reaching Generational FIRE. This is definitely one of my Marine Corps-level theories that I’m willing to stake my life on.
Being Intentional about Being Debt Free in Waves
To be truly debt free, you would have to owe nothing or close to nothing.
However, many people are misconstruing their journey as simply paying off all Credit cards and personal loans. We are opting for a more transparent approach through sequencing (See Table #2).
All in all, just go at your own tempo. The sequence: 1. Pay off all credit card debt in 2021. 2. Contribute an extra $2,000 per month into one mortgage to free up cash flow, 3. the extra $2,000 and additional cash flow to pay off the next property, 4. wait until the Public Student Loan forgiveness kicks in to free up more cash flow, and finally 5. use all new resources to pay off the final real estate mortgage.
If opportunities arise, off-course we will revisit our options without over-leveraging.
Table 2. Annual Debt Freedom Tracking Sheet
| Debt Type | Debt Category | Paid Off | Notes | |
| 2019 | Undergraduate | Student Loan | *$36,000 | *Wife’s undergrad was about $7,500 |
| 2021 | Credit Card | Consumer | $80,000 | Credit Card Debt Free |
| 2024 | Rental Property | Mortgage | $132,500 | |
| 2025 | Graduate | Student Loan | $90,000 | Student Loan Debt Free with PSLF |
| 2027 | First Primary ->Rental | Mortgage | $137,500 | |
| 2036 | Primary Real Estate | Mortgage | $575,000 | Mortgage Debt Free True Debt Freedom |
What Helped Us on Our Journey
We are 1. prioritizing building wealth and 2. choosing affordable homes. Buying into lifestyle trapping merely keeps people working longer which is why people are so excited about paying off their debts quicker. Once that’s done, the most natural transition is to invest more.
The Net/Max Financial Plan offers the opportunity to do both without breaking a sweat. You will find that managing money makes the rest of the journey in life a bit easier. Notice that I didn’t say easy.
Now that this is written, here’s to holding each other accountable. Below are the current liabilities of $313,227 (Refer to Table #3).
Table 3. Total Current Debts as of 6.25.2021
| Debt Type | Debt Category | Outstanding Balance | Interest Rate |
| TSP Loan | Personal | $2,691 | 2.25% |
| Credit Card | Consumer | $27,866 | Varied |
| Rental RE Property | 15-yr Mortgage | $74,750 | 4.62% |
| Graduate Student Loans | Student Loans | $88,695 | 6.38% |
| *First Primary RE | 30-yr Mortgage | $119,225 | 3.38% |
Bonus: Here’s what my household is working toward.
Closing out the year stronger
- Working on investing in the after-tax portfolio to hit the total of $25,000 in M1 Finance Brokerage focused on Dividend Income that generates at least $1,000 in passive Income for starters in 2022. Check out the portfolio in real time. If you like the platform and want to start investing, I have the $20 for $20 referral if you need it – https://m1.finance/SYdqDJ2SyADC.
- Boosting back the EF savings with an additional $3,000. Keep tabs on your savings, cash flow, net worth, investments, retirement, and more for absolutely FREE with Personal Capital! Sign up with my link & get a $20 Amazon gift card. *Terms apply. https://pcap.rocks/lawrencegonz
- Getting back to shape – HIIT Mornings. Running, and biking just pushing out effort. I say it all the time but it’s still good. We did start HIIT workouts off of YouTube.
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2 Comments
J. Money
“Your debt is someone’s income.”
Wow. Powerful $hit right there!
Lawrence Gonzalez
Someone is always getting paid. No matter the downturn.