Debt Reduction: Should we do something radical?

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Now that we've identified our ideal life, Chris and I have been thinking a lot about our finances and how we can shift money allocations to achieve that life. Your feedback on our budget also gave us a lot to consider – thank you so much! That's why I love sharing our finances.

A few of you commented that you don't have a huge "emergency savings" because you know that if something significant happened you can use money from other budget allocations, such as travel, entertainment, and savings, to get by. We realized that this is also the case for us and that it might be time to shift our emergency savings allocations to paying down debt. 

Once we started talking about prioritizing debt reduction we began brainstorming ways that we could pay down debt more quickly, even if they're a bit radical. In particular we started wondering if we should:

Rent or sell our house. We should be able to rent our house for an amount that is at least equal to our monthly mortgage payment. Or if we sold our house we should be able to make a profit of about $20,000. Plus, we have about $25,000 of equity in the house. We could put some of that money towards paying down debt and save the rest to buy back into the housing market down the road.

If we went this route the thought would be that we would find an alternative living situation for 2 – 3 years before possibly buying another house. Of course, renting or selling our house would mean moving out of our house. We would want to find a housing situation that allowed us to lower our monthly living expenses so we've considered living:

With friends. We have close friends who might entertain the idea of renting a house together for a year or so. By combining our living expenses we should each be able to save money. Also, it could be really fun to live with friends for a while, especially since our babies are the same age.

In a small, cheap apartment. It would be an adjustment to say the least to move from a nearly 1,800 square foot, 4-bedroom house to a small, probably two- or one-bedroom apartment. But if we were able to make a dent in our debt it's a sacrifice that would be worth it.

With Chris's parents. This would be the option that would lower our living expenses the greatest. Chris's parents would be willing to let us live with them and pay only a portion of utilities and for our groceries (amazingly generous!). The savings would be great but it would be a full house with all five of us and our commutes would be extended by at least 20 minutes, likely more.

When we first started discussing these options I couldn't imagine selling our house. Our house isn't my dream house but I do love it; it's comfortable and open, we have great neighbors, and we like the area of town we live in for many reasons. Plus, at $1,250, our mortgage is really affordable for us.

But the more I thought about what selling our house could mean I started warming up to the idea. I want to remain open to options and be willing to sacrifice in the short term if the end result gets us close to our ideal life, even if it feels a little scary!

12 responses to “Debt Reduction: Should we do something radical?”

  1. Sarah Avatar
    Sarah

    I love that you are considering doing something radical! From an outside perspective, moving in with friends sounds ideal. You could rent out your house, make some extra money doing that, while still building equity in your house. You’d have lower expenses and get the experience of living in community with friends. Win-win! Then you’d also always have the option of moving back into your house if you needed to for any reason.

    We also have a dream of being debt-free (our only debt is our mortgage), but right now we’re focusing all of our extra money on long term savings (Roth IRAs and my husband’s retirement account at work). Once I am back in the workforce (probably still several years from now), my entire income can go to paying off debt and saving in a much more radical way.

    Best of luck and keep us posted!

    Reply
    1. Kelsey Avatar
      Kelsey

      Thank you, Sarah! Saving for the long term and retirement is SO smart. Its incredibly scary how little many people save for retirement even when they have the disposable income to do so. 

      Reply
  2. jen Avatar
    jen

    I can only speak from my experience, but in May 2012, my husband and i had this exact conversation and choose to rent out our house, move in with his parents for about a year, and then rent until we had enough saved for a large down payment on a new home. All in all, I wouldn’t do it again. Here is why: moving was very expensive, it stressed out our three year old to have so many changes, it is very difficult to parent when you have for adults sharing the responsibility and possibly have slightly different styles, renting is hard – we are currently having to sue the owner of our first rental bc he is refusing to return back rent and security deposit, and we have found it very difficult to not be in control of repairs when things break. For example, our current landlord let us go three weeks with out a working grudge while he sorted out warranty issues. I was six months pregnant at the time. You can imagine that was not fun. These are just some things for you to think about though. Everyone has their own path and I’m sure you guys will choose the right path for your family!

    Jen

    Reply
    1. jen Avatar
      jen

      Fridge, not grudge.

      Sorry, was typing on my phone. 🙂

      Reply
    2. Kelsey Avatar
      Kelsey

      I really appreciate hearing about your experience and you bring up some of the exact things that give me pause about moving forward with these radical scenarios. I really love having the personal space that we do in our house and I also dont feel super excited about the prospect of being a landlord. Sometimes renting seems like it would be a relief because I wouldnt see everything I want to change/fix but then again it would be a pain to have to wait for someone to fix something. Definitely taking all of this into consideration!

      Reply
    3. Kelsey Avatar
      Kelsey

      No worries, Ive been there! 😉

      Reply
  3. Kristy Avatar
    Kristy

    Kudos for getting serious about moving toward your ideal life! One of the first thoughts we had when we decided to tackle our debt was the same. We could’ve been nearly debt free instantly if we sold our house. We decided against it for a number of reasons. Some things we thought about were appreciation of our house vs. interest on our debt, factoring in all the associated costs with moving and renting, and the time we’d need to save a down payment. We found if we put our noses to the grind stone we could be debt-free in about the same amount of time it would take us to sell, pay off debt, rent and save enough for another down payment if we went that route and we’d never be able to buy back into the housing market and get a similar house at a comparable price in the housing market around here. Have you taken a good look at your budget on where you could cut expenses otherwise for scenario comparison? If you’re comfortable living with others, maybe you could rent a room out in your house to a student or young professional to save on some housing costs without moving. It certainly sounds like you have a lot of options anyway which is always good!

    Reply
    1. Kelsey Avatar
      Kelsey

      Thank you, Kristy! You raise some excellent points and sitting down and giving our budget a hard look is what were doing right now. You are an awesome example of tackling debt!

      Reply
  4. andee Avatar
    andee

    My husband and I managed to save my net income over 2013, and now we are starting our plan to pay off our mortgage in 5 years in January. The idea of being completely debt-free is so exciting, I just hope I can maintain the excitement for 5 years.

    What about having your couple friend with the baby move in with you guys and split your mortgage instead of renting together? Half your house payment would get paid, you would continue to build equity and get to stay in your home. My sister and her husband rent out a room in their house to a friend.

    Reply
    1. Kelsey Avatar
      Kelsey

      What an awesome goal! Thats an interesting suggestion. We had wanted to look for a house to rent so that we could rent a house bigger than either of our houses so that wed have a bit more room to fit two families but your idea is more practical as we wouldnt have to move.

      Reply
  5. Katie Z Avatar
    Katie Z

    First let me say I love your candid talk about budgets and financing. As the daughter of a banker I wish everyone talked as opening about money. But as I read this post I do have some question. It seems like from your budget a large portion of your debt (pretty much all of it except your house?) is student loan debt. So I have two questions for you, first, are you using an income based repayment plan? With your incomes and potentially because of your employer if you make minimum payments under these plans chances are you will come out on top given your debt level, particularly if you work for a public school and qualify for the public service plan which only lasts 10 years. It may take a long time to get rid of the debt, you’ll have a loan payment for a longer time, but in the long run you’ll end up paying less. Second, are you factoring in the tax benefits of both your mortgage and your student loans as you think about drawing down debt?

    Reply
    1. Katie Z Avatar
      Katie Z

      Some other things to consider too, think about your current interest rates, particularly on your home. Last year we refinanced to a 15 year mortgage at almost the exact cost of our existing mortgage because our rate dropped from 4.5 to 2.9. Rates are not that low anymore but they are also likely to rise, meaning that if you sell now but buy later, you may get less from your investment (more of your payment would go toward interest). Additionally, if you currently have equity in your home, another option could be to refinance while rates are still lower than student loan rates and then us that money to pay off your student loans which are likely at higher rates. Just some things to consider, but I think when we think about getting rid of debt it is also important to consider the cost of our debts.

      Reply

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