Meanwhile, I made another spreadsheet. This spreadsheet listed everything we owned, and I do mean everything. Well, it included everything except our house. We were underwater and basically renting anyway. Since we were at war with the banks, everything was in the fight, including all of our preps, everything. After all, this was our SHTF situation to deal with. We prioritized our “stuff ” from 1-5. An item identified with a one was among the most useful to our survival, and those things that were least useful were given a five. We then began selling the items listed as fives and fours through various methods– on craigslist, by word of mouth, yard sales, and bulletin boards. We didn’t use Ebay, since they charge a fee and shipping was extra work. We were able to keep it local. Did we sell things at less than fair market rates? Yes, many times we did just that. Like so many others in tough times, we needed cash. We actually learned a lot about value during this time.
In the early days of our fight, we also minimized our expenses. We looked at our utilities and bills. We cut out about 15% of our utility usage, canceled our cable, renegotiated our cell phone (needed for work), and canceled three subscriptions we had for various things, such as Netflix. We started shopping at Goodwill and similar thrift stores again. We stopped at yard sales when we would see them. We saved aluminum cans and redeemed them when we accumulated enough to see a payback. We carpooled to work and so much more. I have a hobby doing leatherwork. I started selling items like belts, holsters, and sheaths to friends and relatives for a little extra each month. The wife’s job provided overtime periodically, and she worked as much as she could. In a short while, we had 20% of our income being used for the war.
One note about Goodwill. We were able to obtain items we could sell at a small profit every once in awhile, and I was able to find useful items for my leatherwork. Things like buckles, clips, and snaps were removed from old purses and belts and then re-purposed.
Amazingly, at least to me, within a year and a half we had our six month reserve fund saved up. We had ended up selling most of our fives, fours, half of our threes, and a few of our twos, and ones. We would have reached this goal much earlier, but the battle of the wife’s debt was waged at the same time. She would negotiate lower payments and or payoff amounts. An interesting incident happened early on. I received a call from a credit card company I had with one of the two cards I held (both were maintained in good standing). My wife had a card serviced by the same company, but I wasn’t even an authorized user on her card. The gentleman said that I had to pay my wife’s debt or he would cancel my card and terminate my Credit Union account. He actually threatened to cancel my checking and savings accounts. I had this card for 15 years and had never been late on any payments, but I had hardly ever used it. I came to find out that his company somehow was involved with the Credit Union and actually could possibly do just what he had threatened to do. I countered with legal action, if he were to go through with his threats. They did cancel my card, but they left my other accounts alone. We did have to use some of our reserves during this battle. We had to take out 401K loans twice, which we would payoff asap. In the end, we reached agreements with all of them; the amount paid averaged out to 60% of what was owed.
At this point we had won the largest battle of the war. It was a battle, that if we’d lost, would have probably cost us the war and so much more! We suffered our own losses, of course. We had sold many items we would have to replace sometime in the future. Our preparedness was probably half of what it was when we started. Our credit ratings had been affected (the wife’s severely), but it wasn’t affected as bad as one would think. Our income tax bill had jumped because every penny we negotiated down with the credit companies was considered income. Still, we were emboldened and happy with this win, and so we went on the offensive.
Our next battle was to go after our three remaining credit card debts. First, I called the company of each of the two cards I had and requested a lower interest rate. One agreed and lowered my rate from 18% to 14%, but the other wouldn’t even consider it. I was stuck at 19% with them. We didn’t bother to call on the wife’s card, due to her current rating. Ironically, her interest rate was at 11%, since she had obtained the card when her credit was impeccable. The power of a good credit rating can not be overstated. A rating of 650 gets that person access to minimal credit at loan shark rates, while an 820 score gets that person unlimited access to credit, reasonable rates, and perks are offered to boot. A prudent 820 person can use the banks money, while a 650 person must beg to pay the bank. We didn’t have much of a balance on our cards compared to some other debt, but the interest rates were horrendous. Each time we paid one off, the payment amount was added into the next. The first was cleared in three months, the second three months later, and the last a year after we had started on them. The minimum payments required were not large, but the amount of interest was 80% of what we sent in. By paying them off, that interest was now free to be used in our next battle.
Next we attacked our two vehicle loans. We paid off one in six months, sold it, and bought an older vehicle. Selling it outright would have left us with a single vehicle, which was not feasible. We used the excess money from the sale to attack the second vehicle loan. This battle was won six months later.
At this point we were really excited about how the war was progressing. In three years we had established a six month financial reserve and won the gambling battle, the credit card battle, and the car loan battle. We were out of our SHTF scenario but vowed to redouble our efforts to win the war outright. We maintained our frugal lifestyle and now were applying 40% of our income to the fight. We were now down to one small and two huge battles. We owed on a fairly small student loan, a brand new Ford F250-sized second mortgage, and a mind numbingly large primary mortgage. We don’t own a huge house, and our mortgage payment wasn’t real big compared to others. It was 18% of our monthly income, but in this war it was so large compared to the other battles that it was hard to maintain focus on achieving our goal of eliminating it. After all, the vast majority of people assume they will always have a mortgage payment. We were no different in the beginning. No longer. It was now our greatest enemy.
We paid off the student loan first and then focused on the second mortgage. We once again turned to our 401K accounts. We borrowed the money from our account and paid it off. One thing about taking a 401K loan, at least ours, is that we pay ourselves interest at a 3.25% rate. In our case our second mortgage was at 6.25%, so by taking out a 401K loan we went from giving the bankers 6.25% to putting an additional 3.25% into our retirement account. Yes, we lost some potential gains from the stock market, but to us it was even more important to stop paying a bank. At this point, we were no longer under water in our house. We now owned a portion of it. The wife told me, “At least we now own your favorite part of the house.” Like an idiot I bit. “Where’s that?” I asked. “Why, the bathroom of course!” she said.
Now we were down to two loans– a 401K loan from ourselves and the dreaded mortgage. In our mortgage we were paying the bank 75% of our payment in interest, with only a measly 25% going to principal. We had looked into refinancing our mortgage a few times during this war. We even qualified for zero fee HARP refinancing, but I wondered at what price. We would reset the payment clock. By doing a refinance, we would have been paying 95% in interest for each payment, compared to the 75% we paid at the time with our existing loan. Our payments would have been less, but every time I looked closely it was no better than a wash. Our payments would be less, but more of the new payment would go towards interest; even if we applied the difference between the old and new payments towards principle, it was the same result.
We now focused on paying ourselves off. We wanted to eliminate the 401K loans before we tackled the mortgage. We did this mainly because we wanted to have 401K loans available for our assault on the mortgage. A huge thing happened that helped us at this point; my child support obligation ended. After that was completed, we were utilizing 60% of our income in the war. So we doubled our principle payments to the bank for our first mortgage while paying off our 401K loan. In March of 2012 we paid off the 401K loan. We now only had the mortgage to deal with.
We were now confident in our ability to control our finances, so we added a fourth step to our plan.
- Use enemy resources whenever possible. If we could use bank money for our gain, we would whenever feasible.
This is where some might consider we had slid backwards. I say this because we got another credit card and credit cards are the most dangerous weapon a bank has to use against us. However, this card is different. It has great rewards associated with it and no fee. It’s an American Express card issued through Costco. I’m not promoting either one by the way. We get two or three percent back for purchases on this card. We got it in 2012 and use it in place of our debit card for almost everything. We simply pay if off each month. We know our limitations and our budget, and we spend accordingly, so the majority of our purchases go through this card. We have never made an interest payment, yet we have received a nice check from them each year. We are using their money each month and they are paying us to do so. They are betting we will screw up at some point. We know we won’t.
At this point in 2012, we were paying almost 60% of our income towards the mortgage in addition to our scheduled payment. This equates to four and sometimes five principle payments each month. Every three months we were reducing our payment schedule by a year. Every year our schedule was reduced by four years. By 2013 our interest to principle ratio had gone from 25/75 to 50/50 or so. We were on the way. At this rate we would pay off our mortgage in 2019, which was something like 15 years early.
We actually had a major advantage in this regard; I was to receive a large payment in the winter of 2013 for an injury I had endured in 1987. I did not receive the entire amount, however. The insurance company that held the rider had folded, but I did receive 60% of the funds from the Guarantee Association in my state. This is a whole other story on the pitfalls of insurance, government oversight, and outright governmental embezzlement/fraud…for another time, I guess.
So, in 2013, we were able to reduce our mortgage to an ultimate payoff in 2016. We now were at a ratio of 90/10, but we were not happy with that. Our ultimate goal was in sight, however. So last month we once again took out 401K loans. On October 8th we paid off our mortgage and became debt free. We now owe no bank anything. We only owe ourselves, and our financial future looks the brightest it’s ever looked. On the day we made the last payment, I told the wife that this is the first day I haven’t owed a bank any money since I was 21 years old, which was more than 30 years ago. We are now too small to fail. Our home has now recovered much of the value we lost in the crash of 2008, but we don’t care what it’s worth anymore. It’s our home.