Living mortgage-free: The power of cash
When Kara and J.D. Smith were first married, they started making moves that set them on an early path to financial success.
Now, about a decade later, they have no debt.
The Smiths' story is remarkable — and not just because the couple paid off a mortgage in seven short years.
Kara and J.D. own their modest Texas house free and clear. But they also own their cars outright and bought the land on which they will build their dream home with cash.
And they've accomplished all of this despite illness and job loss that could have sunk them.
The couple married in 2002 when Kara was 19 and J.D. 21, and between them they made about $70,000 a year. Kara was the general manager of a restaurant, and J.D. worked on a crew that serviced offshore oil drilling rigs.
At the time, they had two car payments — hers was $279 a month and his about $400.
When Kara bought the car two years earlier, her initial balance was $10,000, and she started paying that debt down aggressively.
The couple cleared that debt a few months into their marriage. Eventually, they paid off the truck, too, learning in the process a valuable lesson in financial security: the power of cash.
They vowed to buy future vehicles used and paid for in full.
Another lesson: You don't have to take all of the money a bank is willing to lend you.
When the Smiths bought their home in 2004, Kara was shocked their lender approved them for a mortgage of $300,000.
"I remember my husband and I looking at each other wide-eyed and not believing that a 21- and 23-year-old were just approved for that amount," she says.
The first home the Smiths found that they liked was both spacious and in a great neighborhood. List price: $220,000.
"While we could certainly cover the payments with our current jobs, it would be tight and we sure would be in a bind if one of us were to lose our jobs," Kara remembers thinking.
So instead, they settled on a house in Big Spring, located in southwest Texas, that "was move-in ready with the asking price of $80,000."
After a negotiation, they paid $70,000, putting down 20% and financing the rest.
The Smiths took out a 15-year, fixed-rate mortgage, a loan favored by personal finance author and radio host Dave Ramsey, whom Kara had started following.
The home is 1,680 square feet and has two bedrooms and three bathrooms, plus a 750-square-foot workshop in the backyard. With taxes and insurance, their mortgage payment came to about $600 a month.
When J.D. later switched jobs, his salary increase covered what Kara earned, so she decided to stay home with their newborn daughter. After she became pregnant again, that's "when the test began."
In 2008, when the economy collapsed, J.D. lost work in the oil field bust. Then Kara was diagnosed with cancer.
With no health insurance, the Smiths drained their savings and fell $20,000 in debt to pay for treatment.
Kara's parents gave them the money to cover chemotherapy, and while her parents insisted the money was a gift, the couple didn't see it that way.
When she was well again, Kara went back to work.
In the meantime, J.D. began working for an oil field broker. Eventually he became a broker himself, securing land leases for oil companies, which was more profitable and secure since he couldn't get laid off.
The Smiths paid back Kara's parents and put another chunk of money into the house.
By 2010, Kara was back at home and homeschooling their growing family of three children, now 7, 6 and 3.
Since they were debt-free, they were able to invest in their retirement accounts. Today, they have a diversified portfolio worth about $400,000.
They also bought two rental properties with cash and turned half of the shop in the back of the home into a classroom and office, which allowed Kara to move her homeschooling work out of the kitchen.
Faith plays a huge role in the Smith family, which is why Kara also started a nonprofit called the Holden Uganda Foundation, founded in 2010 and named in honor of a friend's son who was stillborn.
"To date, we have done 135 water well projects in Uganda with many more in the works," she said. Last year, Kara and her daughter, Jordan, were able to travel to Uganda to see the wells and meet the people they were helping.
And last year, the Smiths paid cash for an 80-acre piece of land on which they will build their dream home.
In typical Smith fashion, they plan to save up to build the home.
The Smiths' tips for enjoying a debt-free life:
- Live below your means. Living in a home that cost less than they can afford has let the Smiths be much more flexible in other parts of their lives. Even though she admits their home is small for a family of five, Kara wouldn't change her situation. "I love it for the simple fact that it's paid for, and I refuse to move to another house until we can pay cash for it. Right now, I would rather stay in this home, make updates as necessary and take trips to Africa and other wonderful places."
- Set priorities. After Kara went back to work to pay down her medical debt, she absolutely knew she wanted to stay at home with their children, so the couple worked toward making that a financial reality. "It became more of a drive to become debt-free and stay debt-free and build our wealth so that we could have the luxury of me staying home with the kids. This also means older cars and a smaller home, but to me it is well worth the trade-off."
- Give back. Faith plays a strong role in the Smiths' lives. "I believe He gives and He takes away, and if we are not good stewards with His blessing, then He won't give them," she said. When they learned about clean water projects, they wanted to help out, and that lead to the Holden Uganda Foundation. "It is no coincidence to me that my husband and I were blessed financially during this time while HUF was getting its legs," she said.