Recently, I wrote about the reasons I decided to sell 3/4 of the New Life Portfolio. To put it plainly, I decided to liquidate stocks and realize the associated Capital Gains in order to completely pay off one of our cars.
Our only remaining debts, besides our mortgage, are two car loans. This decision to liquidate assets and pay a car off was spurred by the most recent car payment. After making the payment and seeing the principal/interest breakdown of the payment, we realized the interest we paid was more than the dividend income we received for that month. Keep in mind some of that income is taxable, while none of the interest paid was tax-deductible.
On September 28, we made a final payment of $4,844.59 to pay off one of our car loans.
That last payment also helped us to cross off another achievement on our Milestone Achievement list.
On September 28, 2016, the final car loan payment took the TOL’s debt level to under $100,000.
I have stated before how I struggled with debt before I met Mrs. TOL. At one point in my life, I was roughly $300,000 in debt. I actually considered filing for bankruptcy. Fast-Forward about a decade later and I am on the verge of being (commercial) debt-free, as we have only one car loan left to pay, and the balance is under $9,500. I owe it all to my faith in God.
Debt is one of the most debilitating and depressing things in life. Not only do you have the principal to pay back but the interest that is added on top of it makes it all the more difficult. I remember having credit card debt with a 25% interest rate! The breakdown of the $150 monthly minimum payment was about $90 interest/$60 principal!
The New Life Portfolio up to that point was about 1.5 years in the making and was up to over $11,000 in value. The best decisions are made with the brain without interruption from the heart; and my heart did not want to liquidate. However, my brain saw hard numbers that don’t lie – YTD interest paid on the recently paid car loan was $428 vs. YTD dividend income of $250. Keep in mind, the $428 YTD interest is from ONE CAR, that does not even include the other car loan!
This move creates a better monthly cash flow for us, being we are a 1-income family. This move frees up $308 a month. The rate on the loan was 4%, while the YOC (yield on cost) of the portfolio was a little above 4%. However, I owned some REIT’s (O, OHI) and a BDC (MAIN) which pay out Ordinary dividends so the actual YOC may be below 4% when factoring in taxes.
I realized about $600 in capital gains from liquidating my holdings. The timing of the liquidation was great, as the market was at that time (and currently) in “overvalued” territory! I did not sell any positions that were heavily in the red and the remaining positions in the Portfolio reflect this. We used cash to fund the remaining pay off of the loan.
So what about the other car loan?
We have our sights set on eradicating that loan also. However, the rate on it is 2%, half what the rate was on the bigger loan. Right now we want to rebuild our cash reserves and rebuild the portfolio. This should not be too difficult of a task now that we have the extra funds freed up and do not have to pay 4% on borrowed funds!
Be looking for the next Achievement post, we may just get that “itch” again to knock out this last remaining loan – and become debt free.