If you’re in debt, its hard to make long term plans for wealth and retirement because they seem so far away. I’m in this position where I know all the right things to do to build wealth but I can’t actually act on them because I’m still deep in the hole and need to climb out. The pursuit of financial independence starts from zero. I’m way in the negatives feeling my way through a dark and at times depressing journey to net positive, the point where my debts are eliminated. At this stage of indebtedness, making progress requires me to make more money and put it all towards my student loans until they are completely eliminated. So I find myself having to break the rules for achieving financial independence to first achieve freedom from debt.
My debts are prioritized as:
- Credit cards
- Student Loans
- All other debt including mortgage
In the next few months, I will eliminate my remaining credit card debt and be able to focus on the second and most challenging liability I have, my student loans. Paying off over $150K in 3 years requires making payments of at least $5,000 a month for the next 24-36 months. Coming up with this kind of money is going to require some bold moves on my part. I need to find streams of income that can produce that much after they cover my expenses. For now, the only such stream of income I can think of aside from my salary is real estate. With real estate, I can create a positive cash flow that will allow me to tackle my student loans aggressively. So I’ve decided to purchase another property and rent it out. All the profits from the rental property, my salary as well as my side hustles will have to be able to generate at least $5,000 a month. But real estate is cash intensive and requires a large upfront investment. So unfortunately I’ve had to make a few sacrifices that I wouldn’t even have considered if I didn’t have student loans. But alas, since I don’t have wads of cash lying around, I took out my Roth IRA to use it as a down payment on my property purchase. My account is now a sad shell of what it used to be :(. My goal is to replenish it once I’ve tackled a few high interest installments. I guess I’ll have to lose out on the compounding effect until that time.
Having to withdraw my Roth IRA to buy a property has me bummed. But I’ve made peace with it. After all, a rental property will help me eliminate my loans. And once my loans are gone, it will become a source of passive income. I’ll be looking for properties to purchase and hopefully making an offer in the near future. Once I’ve purchased a property and done a quick live in renovation, I will rent it out and begin my debt repayment journey. Here’s the plan:
- 0-2 month: Purchase property and make cosmetic changes
- 2-4 months: Rent out property and start to tackle consumer debt
- 4-6 months: Implement student loan method 1, transfer the first student loan balance to my zero interest credit card and start paying it off.
That’s the plan. I’ll be doing my best to stick to it. Here we go…