I’ll be blunt – this post is somewhat controversial to traditional financial wisdom. It scares people. But please, take the time to understand and you may just save yourself a great deal of income and accelerate your future – be it savings, paying debt or retirement. I really hope you enjoy because this has helped us amazingly! This is why in 2016 we paid 17,000 in interest and in 2017 we have only paid $4,000… because we are actually getting ahead and attacking the principal balance!!
“It is well enough that people of the nation do not understand our banking and monetary system,
for if they did, I believe there would be a revolution before tomorrow morning.”
― Henry Ford
Paying off debt with debt!
Often times when we tell people how much student loan and auto debt we paid off in 18 months, people are either shocked or are so confused it doesn’t even make sense.The inquisitive one’s ask how, and we say with extra income streams and discipline we have figured out how to put over 60% of our income towards our debt. Paying off over 90K in student loan principal is no easy feat. Student loans suck!
Most of the time our answer is not what they want to hear, because there are some lifestyle changes involved with adjusting to 60/40 percent with a goal of 70/30. Pay now, play later is our mantra, not play now, pay forever.
In reality, we have sorta been telling a half lie. Not because we are dishonest, all the above is true. But because we are leaving one thing out: we use a debt acceleration program.
What is an acceleration program?
Why are people reluctant to use acceleration programs?
When we mention acceleration using a home equity line of credit people tense up and become uneasy. Add that most programs cost money and people have already said “no” in their head. The realist in most of us tells us something like this is too good to be true and we immediately knock the notion that it works. Ask Dave Ramsey and he will say don’t proceed with the idea. Like anything, it is not for everyone, there is some discipline involved and you need to generate positive cash flow. Another writer called the concept tricky and confusing.
Personally, this is just what I needed to hear to motivate me to make it work! But in our specific case, what did we have to be cautious about? We were robbing Peter to pay Paul. In order to pay off over $300K in student loan debt we needed to act and think outside the box. Additionally, there is not much literature on the concept, which makes it hard to find information on.
Not even MMM has much to say about the concept. A simple google search only yielded 42,000 search results. Not a lot when compared to a google search of “Debt consolidation,” that yielded 103 million results.
But why have I not heard about it ?
- Banks do not want people to accelerate mortgages. It is not something that is commercialized or recommended. So most programs are small companies, sometimes that can scare people away
- Banks would rather have you re-fi or consolidate, they don’t deal in the financial advice world
- Most people have no clue what amortization even means
- Most people use traditional methods their parents use
- Requires a positive cash flow each month
- Seems complicated but very simple once the concept is embraced and studied.
- Streamlines life (we run everything through 4 Penfed accounts)
- By attacking the principal amount (the amount the interest capitalizes off) you pay less in interest and more of your payments go towards the principal, not allowing the interest to catch-up
How simple is it?
What it would look like for a $300,000 mortgage & a $40,000 HELOC applied at the start of each year?
*If you do not want to read to the amortization schedules just scroll to the bottom*
(Disclaimer: this is the amount we use, the amount depends on your cash flow. We went conservative when we decided on the amount to pay each month towards the line)