How I Tackle Debt

By | August 23, 2017

For years, there have been many debates about good debt vs bad debt. There have also been many different opinions on how to tackle debt. On the one hand, people are of the opinion that all debt is bad and you shouldn’t have any. On the other hand, people are of the opinion that some debt is good and can help you build wealth. I won’t dive into that debate with this post. However, after reading this, you will see how I tackle debt. I am by no means perfect, and I’m sure there’s room for improvement. But, so far, it’s working for me, and maybe my approach may work for you too.


I bought my first house last year. I was excited, but quickly realized that home ownership can be expensive. Between unexpected repairs and expenses, it can get quite costly. But, when done right, investing in real estate can be one of the best investments to make.

As a single guy, I was used to having roommates. And so, when I bought my house, I kept the tradition. I used an approach dubbed as house hacking by Bigger Pockets. The idea is that the income from my roommates would help cover the mortgage. And it did. I found really great tenants, even though one of my roommates was constantly late with his rent. But it all worked out in the end. I was able to use that income to help cover the mortgage, which gave me breathing room to do other things with the money.

So, if you have a mortgage, and you’re situation allows, maybe you could rent out a room for additional income. It’s kind of like having a duplex, triplex, or fourplex. The difference though is that you’re sharing a space. I realize that for some people, they will have a family and so it may make a lot of sense not to do that. But for single individuals like myself, it’s not a bad way to go.

However, you have to be prepared for the ups and the downs. For example, both of my tenants moved out of the house and I myself moved overseas . So, I had to get a property manager to take care of the property while I’m gone for the next year. The property has been vacant for about a month. It actually was advertised for two months, but I was still living in the property for half of that time. The good news is that the property management company just approved a tenant who will be moving in the first week of September. But, imagine if it took three or four months to rent the property. I would be faced with the choice of reducing rent to an undesired amount or risk more months of vacancy. So, one should account for vacancy, repairs, unexpected expenses, etc, before investing in real estate.

Now that the house is rented, the goal is to have the house pay for itself. So, proceeds and profits from the rent will be used to cover the property expenses. Once I get to the point where the house can cover its expenses and sustain a higher payment towards the principle, then I’ll use the house’s income to pay down the mortgage early. But that’s a long way off.


If you’ve listened to Dave Ramsey for any amount of time, you’ll notice that he hates all debt. This includes taking out a loan to buy a new car. His philosophy is that if you’re going to buy a car (or even a house) you should pay cash. Well, although I’ve listened to Dave Ramsey often, I don’t rigidly follow his advice. Many people are not in a position to just pay cash for a car – at least not the car they would ‘want’ to drive.

However, I’ve given some serious thoughts to this approach. I don’t have a car now and won’t need one for the next year. But, conceivably, I might need a car a year from now. So, it may make sense to pay cash for the car and not go into debt.

It turns out I will be receiving around 11k next year fall. I was going to put that amount in my dividend portfolio. But, I’m starting to think that it might be better off to use that money to pay cash for a car. I’ve never really bought anything for that amount of money before (not counting stocks), so it might be mentally hard to do. This decision is not for another year. So I have plenty of time to decide. But it’s been on my mind lately.

That being said, if I find out that I won’t need a car for an additional couple of years or so, then I would put the 11k into the portfolio and save separately to buy a car with cash.

so, how do I tackle a car loan? By avoiding it in the first place by paying cash for the vehicle.


This should be no surprise. I’ve decided that I’m going to pay off my student loan. If I listen to Dave Ramsey and save $1000 in my emergency fund, stop contributing to my retirement accounts, and pay everything extra on my debt (using the debt snowball), I would surely pay off my student loan within a year. However, I don’t want to do that.

Doing so would require me to stop contributing to my dividend portfolio as well. I think the automatic contributions to my retirement account is a good habit. And I need all the good habits I can get to counteract all my bad ones. I also like the automatic savings I do with my monthly contributions to my portfolio.

I do admit though that it is VERY difficult to try to max out my 401k, IRA, contribute to my dividend portfolio AND payoff my student loan in a year. It’s going to be a BIG help to have my house rented. But, even then, I plan on using the profit from the rental to put in a separate account to cover vacancies, expenses, etc. I want the house to pay for itself without coming from my paycheck. It may take a while to get to that point, but once there, that’s the best place to be. But, even with the house rented, it’s going to be difficult to do all those things.

I’m contemplating reducing my monthly contributions to my dividend portfolio so that I can speed up repayment on my student loan. There’s nothing magical about getting rid of the student loan in a year. Indeed, it realistically might take me 18 months or 2 years the latest. But, the quicker I pay off the debt, the faster I can focus on building wealth.


I don’t have any credit card debt at the moment. But, when I did, I paid them smallest to largest, essentially following Dave Ramsey’s approach. I don’t plug this too often, but if you subscribe to this site, you can see the free tool (spreadsheet) I used to help me stay on track and get out of credit card debt.


People tackle debt differently. For me, I chose to invest in a house to get rental income, so that the income can cover the mortgage and property expenses. I’ve decided to pay cash to avoid a car loan. And, finally, I plan to focus on paying off my student loan, but while maintaining some level of automatic investments to my retirement and taxable accounts.

What do you think about how I tackle debt? How do you tackle debt? Let me know by commenting below.

10 thoughts on “How I Tackle Debt

  1. Project2035

    HI DP. What is you interest rate on mortgage and student loan. This should be your answer on repayment vs. Inesting. If the margin is way higher then divident yield alocate fund to loan repayment ir it is lower or close invest. For example we have mortgage and student loans also but since their interest is bellow 2% and I earn 3-4% dividend yield all goes to investing and no aditional repayments. Also my idea is that in case of emergincy you can always sale your investment and use the money. If you repay loand im almost 100% sure that you will not get a loan back. For me my portfolio gives me some sort of comfort in case of some kind of financial problem 🙂

    1. Dividend Portfolio Post author

      Student loan is at 2.625%. Mortgage is at 3.5%. Average yield is around 3.18%. So the spread is not that high. But I think I understand what you’re saying. Basically, since my average yield is 3.18% but my student loan is at 2.625%, then it makes more sense to invest in the dividend portfolio than pay off student loan. That might be mathematically correct, but the interest rates are noticeably close. And so, if I take the year to pay off the loan vs invest, the difference between the two is not that high. But, I think the benefits outweigh the cost. I definitely see your point though.

  2. Dividend Daze

    Everyone has their own ways of tackling debt. No way is necessarily better than the others. But I do think credit card debt should be eliminated first since there is no benefits, and only extremely high interest rates which are negative. I don’t really care about the good vs bad debt argument. It all costs you money for the most part. I do like however, when you say you are using your house as an investment, you actually are producing revenue from it. Therefor, it is an asset. Others consider their own house as an investment or an asset, but it only costs them money. As you mentioned, repairs, mortgage, taxes, etc. Therefor, I consider it a liability since it doesn’t put any more cash in your pockets. But that is just my thought process.

    Same thought as for a car and car loan. I can’t afford a brand new car with cash, no way and not many can. But in the long run, I think new-ish cars have a better value. So I would rather take out a small loan to pay the higher up front cost, to get my money’s worth moving forward. Any car with lower miles and one or two years old is perfect, I wouldn’t go brand new. Less maintenance or repairs you need to make since it is newer and you get to drive it for more years. Makes sense from a value and cost standpoint than buying a used car with cash that is terrible and I need to get a different one every year or two. Same with the psychological benefits of knowing it won’t break down on you at any minute. But again that is just me, and I used that to build credit as well. Everyone has their own way of doing things. Just being smart and active about paying down the debt one owes, or smart about what you are taking it out for in the first place.
    Dividend Daze recently posted…Recent Buy – LTC Properties (LTC)My Profile

    1. Dividend Portfolio Post author

      Great point Dividend Daze. What’s important is paying attention and being conscious with money. A lot of people just aren’t as conscientious and it costs them over the long run. I do like the idea of buying a car that is only a year or two old. I won’t suffer the huge depreciation that exists once I drive a new car off the lot. And, the used car (but newer), is a good value. I remember the days when I bought a cheap car off of craigslist only to have it break down before buying another used car, which also broke down. So, I decided to lease a car, which was a mistake (in the long run). My experience with cars has not been the greatest, but I hope to reverse that trend with my next purchase.

      Always appreciate your comment Dividend Daze.

    1. Dividend Portfolio Post author

      Thanks Mr. ATM. I’m still crunching the numbers on my student loans, but that’s the general idea, which is to get rid of it soon. Car loans get a lot of people in trouble. I don’t want to be one of those people.

  3. My Dividend Dynasty

    It is to each his own when tackling debt. I tend to avoid debt whenever possible. Never took out a car loan, never owned a credit card, etc. When I was searching for a place to live I was looking for a co-op apartment that I could buy in all cash so I did not have to take out any mortgage. (I didn’t want to rent since rent is insane here in NYC). I am happy with the purchase and my monthly maintenance payments are less than 1/4 of my working income. Taking out a mortgage loan would have meant less month for me to save and invest. Sometimes it is better to buy with cash then take out a loan depending on the situation.

    That is smart of you to rent out your house to cover your expenses and even pay off the mortgage debt. Real estate can be a great source of passive income. It is also great that you take tackling your debt and taking your future finances seriously (I know too many people who don’t). Keep up the good work! 🙂
    My Dividend Dynasty recently posted…3 Simple Ways I’m Saving on My Electric BillMy Profile

    1. Dividend Portfolio Post author

      Thanks Dynasty. I’m with you that it’s better to try to avoid debt if possible, depending on the situation. I also like your approach. Pay cash for everything and just focus on investing. Smart.

    1. Dividend Portfolio Post author

      I have to admit that I miss having a car. But whether I need one or not will wholly depend on where I am. But, if I don’t need a car, then great! More money to my dividend portfolio. Thanks for stopping by Lanny.


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