Friday, June 27, 2014

WOW! What a Snowball!

Now that's a snowball!  Once that baby gets rolling downhill, it will take out just about anything in its path. And that's just what you need to take out massive amounts of debt:  A massive snowball getting ever larger, reaching critical mass, gathering momentum while destroying all debt in its path. 

Of course, my snowball didn't start off nearly this big.  When I started this debt-free journey with just a small snowball in hand last year, I knew I had a monster-sized challenge...Pay off $177,650 of mortgages in forty-two months.   How does one start?  I started plotting my attack by plugging numbers into amortization payoff calculators like these from The Mortgage Professor:

It's really cool to see what an extra payment each year, or each month, or what an occasional one-time large payment (like a tax refund or bonus or money from selling something) can do to wiping out a mortgage over the long term.  Play with the calculators and see what I mean.  I was convinced that I could destroy these 30 year mortgages (now 15 year) in just a handful of years.  In fact, they convinced me that if I got really aggressive, I could wipe out my $177k of mortgages in less than four years. But how? 

Due to the wonderful combination of being both consumer debt free as well as having some additional cash now freed up from paying off our home in only nineteen months, I now had quite a bit more money available to begin increasing the size of my snowball.  My dollars had a noble purpose.  My cold, hard cash would now become a cold, hard, debt-destroying snowball!

In true snowball fashion I chose to pay off my mortgages from the lowest to the highest.  The first mortgage--at the time totaling $49,123--would free up about $425 per month that could be added to the snowball.  Twelve months later, mission accomplished!   (In the spirit of full disclosure, after paying off house #3, I did take a few months off and put the snowball in the freezer.  The payoff effort was intense and I just needed a personal break.)  By April I was refreshed and ready to move on to house #2.  That one was a little larger at just under $55,000 by the end of the year.  We are now into month number 19 of 42.  Where do we stand?

Jan 1, 2013 (Beginning Bal)                           July, 2014                       Amount Paid Off
House #1 - $70,908                                         House #1 - $65,160                     $  5,748
House #2 - $57,619                                         House #2 - $25,692                     $31,927
House #3 - $49,123                                         House #3 - $ 0                             $49,123
-----------------------------                                        -----------------------------               -----------------------------
Total:       $177,650                                                            $90,852                    $86,798 (-48.85%)

I'm astonished at these numbers!  A few notable highlights:

  • Nearly 50% of the mortgage debt has been eliminated in a mere nineteen months
  • We are now solidly under the $100k mark for total mortgage debt.
  • We may be able to eliminate the mortgage on house #2 by year's end.

When we accomplish the third bullet point and eliminate #2's mortgage, that will add another $498.01 to the snowball.  The only problem is that there may be some reduction on the personal income side as our company may loose a lucrative contract and the effects will melt the snowball a bit.  If that happens, I will accept that and adjust accordingly.  We've had a pretty good income this past year and a half and I'm thankful we didn't squander it.  After all, regardless of what happens to our snowball going forward, we are certainly better off having one or two less mortgages.  That's what it's all about:  Remove the risks associated with debt and enjoy the sweet feeling of increased personal financial safety and security.  Let the snowball continue! 

How's your debt payoff or investing snowball coming along?