I’m excited to introduce you to Kate Nesi, blogger and host of the Lifelong Learning Podcast. She was gracious enough to share her pay off debt or invest decision and the process behind it. Enjoy.

Short bio:

I have been married to Chris for over ten years now and we have two young boys, Monkey and Crab, as well as two energetic chihuahuas, Ruby and Jeter, in our family. We live in New Jersey, work in public employment as educators, and are hoping to get ahead by living on less since we’ll most likely not make too much more in our careers.

How much debt did you start with and how did you accumulate it? Did you have one or multiple sources of debt?

We accumulated well over $300,000 in debt by the time we were married in 2007.

About $200,000 in debt was due to a mortgage that was taken out in 2005 for our first home, a small townhome. The rest was in student loans accumulated from 2000-2004 and car loans that we borrowed prior to the home purchase and tying the knot.

Luckily, we never took on consumer debt which I believe helped us tremendously dig out from under the weight of all of our debt.

What were the interest rates?

Our first mortgage was 6.5%!! That seems so high in today’s rates, but at the time it was a good rate when we had to take it out. Our car loans were probably in the 3-4% range, and our student loans were also around the 5-6% range. All in all, those rates were ridiculously high, now seeing so many loans at under 4% these days.

In what order did you plan to pay them off? Why did you choose that order?

At first, I paid off my own debt with the extra income I brought in. When we moved in together after we got engaged, I did not like the idea of mixing finances. So, we split the bills down the middle. I, making more, had leftover income which I put towards getting out of debt.

Once we were married and I rid myself of my own student and car debts, we decided to combine forces and work to get all debts paid off. We paid off Chris’ student loans next, and then his car loan last.

In 2013, we sold our townhome at a huge loss and paid the $30,000 difference to avoid a short sale. Then we bought another home in 2014 after saving aggressively, while living with family for six months, and with that, we have about $200,000 left to go on the mortgage.

Here’s the official order:

Kate’s car loan: 3%-4% range

Kate’s student loan: : 5%-6% range

Chris’ smaller student loans (private): 5%-6% range

Chris’ federal loans 5%-6% range

Chris’ car loan: 3%-4% range

Underwater Mortgage: 6.5%

We chose this method not based on interest rates, but we decided to snowball based on the balances once we combined forces. It was easier to knock out those private loans for Chris because they were $1,000 or $2,000 a piece. Once those were gone, we could push the extra payments towards the next debt. It may not have been the best mathematical process, but it helped us keep going when times were tough.

Did you look into refinancing or consolidating the loans? If so, what was the result and why?

I consolidated my student loans right out of college after finishing my Master’s degree in 2006. Chris’ loans could not be consolidated more than the private and federal separate, but we did look into it. We purposely did not consolidate our loans together after marriage because if one us passed away we’d end up having to continue paying for the other’s education, which would just be silly.

When our home was underwater by over $30,000 we looked into refinancing. If it was a home we wanted to stay in long term, we probably would’ve refinanced. Unfortunately, we were in a very bad neighborhood for 8 years and could not wait to get out.

We opted to instead of refinancing to pay the difference and sell to get out. Either way, refinance or sell, we would’ve had to get our mortgage under the 20% down total so we just ate it and chopped it up to an extreme learning experience to no longer look at a home as an asset or having appreciating value.

How much did you have available monthly to use for debt or investments?

At the time, we probably had about an extra $300-500 for wiggle room. At first, it wasn’t much, but when we cut back our expenses and found that it made a difference. Then, as each loan was paid down, we started to get closer to $1,000 leftover after payments and it grew from there to plow towards the next debt.

What investment(s) did you consider when you evaluated your debt/invest decision? In what type of account(s) would the investments be held?

Our first investment choice was Roth IRAs through Vanguard. As we’ve moved on, our employer options are filled with high fees, so we’ve taken to investing in VTSAX in taxable accounts for now.

Did you consider the tax deductibility of interest or the tax burden on investments in your decision?

We never cared about the tax deductibility of student loan interest or mortgage interest. Getting out of debt was of the utmost importance for us and the tax burden wasn’t huge compared to the burden of the loan interest. I’d rather pay a little to the government to help with services I may one day need, than tens of thousands to a bank for loans.

Did you choose to pay off debt, invest or some combination of the two?

We chose to pay off debt. We didn’t have a huge amount outside of our expenses to put toward one way or another, so debt it was and we barely put anything into IRAs. I am more averse to debt than anything, and I feel such a freedom knowing we don’t have any payments due to anyone other than for the mortgage on our new home (which we’re aggressively paying off).

How has your education impacted this decision?

I took a course once on the global economy at The College of New Jersey back in 2010. The first class was so disheartening, I left feeling battered and like we’d never dig ourselves out of our hole when thinking of how money operates in the greater world economy.

Then, after a few classes, I started to ask myself what small things could I do in my life to be on the side of the economy where it would improve our lives. I came to the conclusion that that meant I should no longer be the debtor but become the loaner instead.

In that sense, I decided during that time I never wanted to take on another ounce of debt for anything, aside from a mortgage, but instead wanted to get rid of all debts and “lend” my money to companies earning returns in the stock market.

(Jason here, just a friendly reminder that buying stocks is not technically lending money to companies. When you buy a share of stock, you are becoming a partial owner of that company. If you wanted to lend companies money and collect interest, you would buy bonds.)

What were the three key factors drove this decision?

Freedom from worry about job loss (we survived many years of constant loss in our careers) Freedom from attachment to things, as we paid things off we “owned” them and no one could take them away Wanting to be able to sleep at night without worrying about money

How did you find the resources to pay off the loans?

In regards to the student loans and car loans, we paid those aggressively on meager salaries. Chris worked many part-time or daily substitute positions in education during that time and I was an entry-level librarian. I decided in 2008, I no longer wanted to live with debt. By 2010, I had paid every last penny to pay off my $35,000+ in student loans, paid off a car loan around $10,000 and we started paying down Chris’ student loans. We paid everything off by the summer of 2012 to never take on those types of debt again.

If you chose to pay off debt, did you give up a 401(k) match or similar “free money” opportunity to accomplish your goal?

We do not get 401(k) matches at all in our profession. We did contribute to pensions during this time of debt payoff, as that was not something you could opt out of. We did give up years of saving in our IRAs during that time, and while the math says we may have compounded more, I believe the path we took was best for us.

If we had maxed out our IRAs instead of paying off debt, we wouldn’t have been able to scrape enough together to get out of the underwater townhome in a scary neighborhood. We were able to make it out alive and for that, no amount of compounding math would be worth it if we weren’t alive to enjoy it!

When you started paying it off, when did you anticipate finishing the payoff?

At the time, I didn’t anticipate payoff timelines like I do now. When we first started paying, I just got excited from seeing the balance just go lower and get closer to zero.

What kept you motivated to accomplish this long-term goal?

Long term, I see a light at the end of the tunnel. Each loan we paid off, starting almost a decade ago, freed up additional resources for us. Each time we freed ourselves from a shackle, we had more flexibility to move our lives around and job loss or other concerns faded slowly into the background.

As we grew on this frugal path, we not only have become freer in our choices but also see how much further we can go in the next decade and possibly be free to make whatever decisions fit our family in the future. This means we may no longer have to work to live, but will be able to live and enjoy our work if that means staying put or moving on.

It’s like drops in a bucket. At first, it seems like it’ll take forever for the bucket to fill. But, as the drops keep coming over time it seems like it’ll overflow sooner than later. Our bucket was once empty with holes in it, now we’ve patched those holes, and can slowly drip whatever extra we want to fill our buckets and take it wherever we please. Freedom of time and consciousness is so profound when one pays off debt, it overflows into other areas of life as well.

Where are you now with your payoff plan? If complete, how long did it take?

We’re done with all debt outside of our mortgage on our current home. It took about 4 years for the student loans and car loans to be gone from our lives while paying cash for furthering our education during that time. With our mortgage, another 3-4 years and hopefully that’ll be ours outright at that point, will equal about a 7-8 year mortgage loan.

Now, as we are paying off our mortgage I am all about watching the numbers fall, playing with options of putting extra toward it vs. investing and spreadsheets.

As we continue to remove all debt from our lives and open up other avenues, I hope to one day start to invest that money in a start-up or other venture as well. Becoming the “loaner” would be more advantageous in the global economy, so our little piece of it was to no longer be at the service and mercy to others via debt and payments to banks.

Looking back, would you do anything differently?

Yes and no. I don’t think I would change what we did, other than if we could’ve started saving sooner in our life together.

If we didn’t buy that one house, who knows what would’ve happened, or if we didn’t experience job loss we may have stayed being spenders vs. savers. I believe life gives you lessons to help you grow, and with that thought, if we didn’t experience what we did I don’t think our resolve to learn, grow, DIY, and pay off debt would be what it is today.

So, yes, I would love to go back and start filling an IRA when I took on my first job at 16. I would love to go back and save, but if I didn’t make those mistakes that led to major downfalls, I wouldn’t be who I am today.

What is your next financial related goal?

We hope to finish paying off our mortgage in the next 3-4 years, by the time I turn 40. I want to be debt free completely and use that additional money to invest traditionally, or invest in our learning by traveling throughout the world. The goal is to not only pay off our mortgage with our second incomes but to invest portions of our primary incomes and use some of that money to pay off the mortgage as well. I would love to beat our payoff goal, but I also feel the urge to travel more. We’re finally taking our first vacation in over ten years since our honeymoon. So, the itch is there to start getting out to see the world, but it’s also there to finish the task at hand and then be completely free in a sense to have more to spend on travel.

Otherwise, our financial goals are pretty boring. We want to have enough in the bank to replace anything in our home that may need to be replaced, we want to be able to continue to buy cars in cash for the long term, and we want to travel. Ideally, just setting boundaries and finding what we’re passionate about each year is a great way to steer our ship.

The ultimate end goal is financial freedom and eventually be able to step away from work if we wish. I don’t know that I would, as I enjoy my work, but knowing we had that freedom would most likely change the direction of where we’re headed.

Is there anything else you want to add to this story that I did not ask?

Live like no one else now, so you can live like no one else later.

Paying off debt is not a normal thing to do. It’s usually not even recommended by many of the risk takers who believe you should invest for the long term and will outperform the debts you have taken on. Find the right path for you. If you lose sleep at night worried about losing your job, start to save so you can weather a small storm. If you are disciplined enough not to spend an extra dollar on items and can invest it all, go that path.

Whatever you do, choose a path and start. The first step is always the hardest, but once you get moving it’ll be hard to stop.

Don’t look at living below your means as miserly, but think of the freedom it gives you to choose. Your choices. No one else’s.

Wrap Up

Thank you for sharing Kate. I understand the stress of buying a home at the top of the market and having it be underwater. I’m glad to hear you’ve made it through that adventure and are now in a position of financial strength.

Please check out KateNesi.com to learn more of her story. You can also subscribe to her Lifelong Learning podcast here.

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Check out the rest of this Pay off Debt or Invest Series

Should You Pay Off Debt or Invest? (It’s Obvious!)

Pay Off Debt or Invest Interview 1 (Winning Personal Finance)

Pay Off Debt or Invest Interview 2 (The Graying Saver)

Pay Off Debt or Invest Interview 3 (The Wealth Hound)

Pay Off Debt or Invest Interview 4 (MSO Life)