If debt is supposed to be so bad, why do I have almost $1 million in debt at 30 years old? How is someone as young as myself even able to amass that much debt? In this article, I'm going to walk through exactly how I amassed such a large amount of debt, and why I so comfortable with it. In fact, I'm not even afraid to leverage even more debt, if the right opportunity arises. As long as I continue progressing towards my goals, that's really all that matters.
Here's a breakdown of all of my debt:
- $305,000 Student loan debt
- $275,000 Personal Home
- $207,000 Investment Property #1
- $130,000 Investment Property #2
- $13,000 0% Interest Credit Card From Wedding
That comes out to $930,000 in total debt. If you include my wife's $180,000 in debt, then we're well over the million dollar mark as a couple. So why did I knowingly take out almost $1 million dollars in debt? Isn't debt supposed to be bad? How come I'm not more worried about this? The vast majority of my debt is, at worst, easily explainable and at best a calculated use of leverage to increase my income and net worth over time. Only a small fraction of my debt is what I would consider bad consumer debt, like credit cards, or auto loans.
My student loan debt is the largest single amount, and was the easiest to attain. Almost anyone can get some sort of financial aid, and it's amazing how quickly that amount can increase. Not only that, I was continually getting competing advice from different sources. I vividly remember being told to try and make interest payments while in school, to decrease my loan balance at graduation, and pay my loans back faster. 1 year in school, I made a gross annual income of $3,000, and another year I made about $7,000. What kind of a dent would $10,000 have made on my student loans? What sense does that make? I was eating cheese sandwiches, ramen noodles, and 88 cent pizza from WalMart. There's no way I was going to use any of that money for loans that I could eventually pay with a pharmacist salary. Now that I'm pursuing student loan forgiveness through income-driven repayment, paying my loans in school would have been the worst use of my money. My student loan balance was the necessary burden in order to get an assured career with a high salary that I could have for the rest of my life, and in less than 20 years, my student loan balance will be completely gone.
So what about the next balance. $275,000 definitely seems like a lot of debt for a personal home. This is the home that my wife and I just moved in to. We previously lived in a 2 bedroom condo, and decided that it just wasn't large enough for a future family, since I take up one bedroom with a home office. Since we loved the neighborhood, and we aren't actively trying to expand our family at the moment, we had the luxury of passively looking for homes as they came on the market. The day before new year's eve, our realtor texted us about a much larger condo in our same neighborhood. He told us that the seller wanted our best-and-final offer by 2 pm on new year's eve. The condo was already about $50,000 under asking price, but since we weren't in a hurry to leave and we just finished renovating our current place, we took another $10,000 off the asking price, just to make sure we got a great deal. The seller accepted our offer, and now we instantly have an additional $60,000 of equity in our new home, we're able to build equity in our home with the mortgage payments, and we have the space to expand our family whenever we decide to.
I also have $207,000 in debt from our original condo. In order to finalize the financing on our new home, we needed to figure out a plan for our first condo. Since we wanted to expand our rental business anyway, and the rents in our neighborhood are higher than the mortgage payment, we decided to rent it. Our monthly mortgage is $1,750 and we currently have it rented out for $1,950. That's not quite as much margin as I'd like, but the most important thing was making sure it was rented out so we could secure the financing for our new home, and the rents will continue to increase with time, while the mortgage payment will stay static over the next 30 years.
My last large debt balance of $130,000 is another leveraged opportunity, with my other rental building. I started my rental business with a duplex that was purely an investment property. I didn't have the cash required to purchase the property outright, so I was able to secure financing for that property, and it was already rented out when purchased. It couldn't have been an easier way to get my feet wet in becoming a landlord. These debt balances may seem massive, but each of them was necessary in order for me to continue to acquire cashflowing assets, and grow my net worth.
Lastly, I have $13,000 in credit card debt from my wedding. It is currently sitting at 0% interest, and I plan to pay it off this year (because the 0% interest period expires). I don't advise putting a balance this large on a credit card at all, unless you're absolutely certain that you can quickly pay it off. The entire wedding was much less stressful, just knowing that I had an extra $20,000 available on a 0% interest credit card, if needed. That being said, we didn't go over our actual wedding budget by more than $1,000, so we did an excellent job planning. I still decided to put $13,000 on the credit card though, because the 0% interest phase was more than 18 months, and I had a burning desire to buy my first rental property. By paying for the wedding with the credit card, I was able to use the money I had originally saved up for the wedding to purchase my first investment property without having to wait another year to save up again. I have a plan to gradually pay this $13,000 off each month, to make sure that I'm not penalized with a high interest rate.
So you can see, even though I have almost $1 million dollars in debt, I feel comfortable and confident in my plan going forward, and I'm not afraid to obtain even more debt in the future, if it aligns with my long-term goals. Life isn't often as black-and-white as people like it to be, and that's where you can take advantage of the opportunities that exist. Just be sure to set your own plan, and hold yourself to it. The first month of 2020 is already over. Where will your debt balance be by 2021?