Debt Elimination Goals

These are my specific goals as they pertain to step 3 of my overall plan.

Starting Point

The following is a breakdown of my investment returns and debt amounts. These debt amounts are the result of dramatically increasing my personal leverage to fund 16 months of voluntary unemployment in order to facilitate a career transition into analytics. The question I need to answer is which, and how much, of my assets to liquidate to pay off which debts.

Investments

These return rates are current as of September, 2018.

Asset/Factor Nominal Annual ROI Tax-Adjusted ROI
Cash 0.0% -
Inflation 2.9% -
VWEHX 5.6% 3.8%
VTSAX 7.0% 4.7%
Fundrise Total Portfolio 8.3% 5.6%
Fundrise Mid-Performing 8.4% 5.6%
Fundrise High-Performing 11.4% 7.6%

Debts

These amounts and rates are current as of September, 2018, the month when I started this journey. Other small balances that I pay off each month push the true debt total to slightly above $60,000.

Debt Note Amount Rate
Group C Student Loan   $3,156 7.0%
Group B Student Loan   $10,074 6.3%
Group D Student Loan   $10,895 6.0%
Group A Student Loan   $22,495 5.3%
Logix FCU Attempting refinance to 0.0% $11,925 4.0%
Barclaycard MacBook, must pay in full by December $1,330 0.0%
Total   $59,875 5.3%

Objectives Going Forward

On a returns-basis, it makes mathematical sense to liquidate all my assets with the exception of my highest-performing Fundrise funds to pay down the first ~$24K of my student loans.

At risk of confusing the analysis, there is a 3% penalty associated with liquidating Fundrise funds that haven’t been held more than three years. It is less expensive for me to pay a few extra months’ interest than it is to liquidate those particular funds.

There is no fee associated with liquidating Vanguard funds, so I plan to liquidate them in their entirety. I will put those funds toward my most expensive debts. I will also pay off the Barclaycard. Though it is 0% debt, it is also low-hanging fruit, and there is a penalty if I do not pay it by December.

Goals

As large as the debts are, Dave Ramsey would say I have a good “shovel-to-hole” (IE, free-cash-flow-to-debt) ratio. Living with reasonable frugality, I expect to have the cash flow to put an average of $3500/month toward debt elimination for the foreseeable future. The amount I pay in September will be higher, as I liquidate investments and pay out saved cash.

Paying off the entirety of this debt by the end of 2019 seems possible, but I may stop paying it down so aggressively, once my most expensive debt becomes less than the after-tax ROI of my investments.

First Goal

In any case, my first goal is to eliminate the Barclaycard and Group B loan. I can do that with existing liquid assets and cash on hand.

Second Goal

My second goal is to pay off either the Group B student loan or the $12K credit balance during or before December, 2018. This will require paying off either $14.5K or $16.4K, respectively, in three months. Which specific debt I pay off will depend on whether I can refinance the $12K at 0% interest.

Third Goal

My third goal is to pay down my debt to the point that my after-tax investment return percentage exceeds the weighted average interest rate on my debt. How quickly this is attained depends on whether I can refinance the $12K.

In all foreseeable situations, however, I should be able to accomplish this by paying off everything except the Group D and Group A loans, leaving a balance of approximately $33K. I should be able to do this during or before March, 2019.

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