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.

They passed.

"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.

smith_interesting_people_ugandaThe 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:

  • Middleburybigdog

    That's the way you do it. I too follow this plan. After years on the debt treadmill. I jumped off. No more loans. Read the book follow the steps. It works.

    • Devin

      Middleburybigdog. what book are you referring to and who is it by?

      • Bob

        The name of the book is "The Total Money Makeover" by Dave Ramsey. I read it and have followed the steps and yes, it does work.

      • Middleburybigdog

        Bob got it before I got home. He is correct. The total money makeover by Dave Ramsey.

  • Dot

    They hade money to start with 70,000 a year! I don't make nearly that much where did they find A home that cost less? I found one but it was not livable would have to spend a lot of money just to make it livable.

    • Eric Dillon

      Dot, maybe you didn't look hard enough for a house, or you were unwilling to sacrifice some of your "must haves" that drive up the price of homes you are willing to accept.

      And if you read the book recommended above you will see that it isn't about how much you make but how much you spend. It is rarely an income problem but rather a want perceived as a need driving a spending problem.

  • hadarah

    Middleburybigdog, please share the name of the book that you are referring to. Thanks.

    • Trout

      He is referring to the Total Money Makeover by Dave Ramsey. Great book good information.

    • Middleburybigdog

      Trout got it before I could. He is correct. The total money makeover by Dave Ramsey.

  • Tom Kirchgessner


  • Tom Kirchgessner

    Perseverance, Love of the Lord, and Love of neighbor that's a pretty good combination. God bless you and your family.

  • James Smith

    The only book you need to read to become financially independent is the Bible.

    • Kevin Kelley

      James Smith........Bible, good one.......Freak!

    • Middleburybigdog

      I agree. The other book we talked about uses the Bible for its principles and names its source.

    • Sam

      Don't put it all on God. You have a responsibility as well. God gives seed to the sower and bread to the eater. You have to be a good steward over what you have and I believe this book helps you to do that.

  • Tina Capito

    My father always told us never spend more than you have and ignore credit cards, don't use them. You will owe more money than you can ever pay for the item you bought with the card. I always remembered that even though I was only in my teens. My husband and I are debt free. I past this onto my son hopping he would hear me. He just bought a house and is making mortgage payments every two weeks. I know he had a substantial amount of money to put down. He always looked at the papers for the best buys, used coupons. He has 4 children and goes on vacation every year, some place different and wonderful.

    • Eric Dillon

      I disagree on the credit cards. If you use them WISELY they can be a great tool. In the past 8 years we have used 12 free frequent flyer mile tickets obtained through our credit card purchases WHICH WE PAID IN FULL EVERY MONTH by treating the card like cash and not spending both the cash in the bank and on the card.

  • hedii

    "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."

    Ok. Here's the deal. I don't own a credit card and haven't for ten years. I haven't had a car payment for five years and won't buy another unless it's a cash deal. I bought a home well below what the bank said I could borrow as well. I have money in the bank for more than six months of living if needed. I'm doing ok.

    But HERE is the reality for MANY people: One, they don't start off making $70k a year and many aren't dual income. You can't do what these kids did on a yearly income of $25k. Second, J.D. went into business for himself. He is a broker. Honestly, the only way to pay off $20k in medical debt, your $70k home, and have $400k in retirement investments within THREE years is to be your own boss and own your own business and be SUCCESSFUL owning your own business. Normal living wages would not allow this to happen and those who live below a living wage (which the country is at about 40% now of those who do) canNOT do what this couple has done. Many don't have the experience, networking connections, or the necessary skills. So yes, it can be done. And no, not everyone can do it. That is life. If we could all do it, we all would! No one chooses to be poor and in debt.

    There is a great video about a couple who tried to live on minimum wage for 30 days (the entire video is great but a snippet is posted below). Many adults living in poverty work 2-3 jobs. They still can't make it. When people work hard and still struggle to feed their families, there is no way they will ever be able to do what this couple did. That's reality. This is real life for most people.

    • Holly

      Great point! This couple have two major advantages many do not: 1. two good incomes without expensive student loans to repay 2. very low housing costs compared to other parts of the country.

  • Sharon Stuart

    there are no houses in massachusetts for eighty thousand dollars, your lucky to find a house for two hundred thousand. yes total money make over book I have it . you have to be very tight wad with money , and how does five people live in a two bedroom home why do you need three bathrooms, do one of the children sleep in there ..unless it was a typo yes if you have extra money put it towards the mortgage thats why you refinance to a lower rate and always and yes clip those coupons. credit cards are for emergency"s this is the general rule.

    • Eric Dillon

      You aren't looking hard enough, or you expect a McMansion for 80K. 15 minutes on a Google search and and I found a bunch, and in the Boston area too.

      • Holly

        I don't know where you found these livable houses in the Boston area for 80K. It costs over $800/month for a studio in poor communities surrounding Boston. 80K might buy a mobile home, but that's about it. You have to pay almost 200K for a small one family in need of work in eastern MA that would be extremely tight for two kids, never mind three.

    • notfromIdaho

      why does everyone think that each child has to have their own bedroom? We certainly didn't growing up. The third bathroom could be out in the garage as a washroom prior to coming in the house...kind of like a mud room for your northerners.

    • CDH

      I'm with you Sharon - no houses in MA for under $200k and most are actually over $300k. Try living in Northern CA where the median price of a home is over $800k. NOW try to buy on a single income. NOT feasible.

  • Sue

    The Smith family is an inspiration to me and me reading this could NOT have come at a better time. I know who Dave Ramsey is and am impressed with his godly teachings. I am out of work, I have been through the cancer challenge, and needed this type of encouragement. thank you Kara and JD Smith.

  • Pl Zee

    This is a great story. I recently lost a job. But because we've always "lived below our means" and not fallen prey to advertising's lure of "must have the newest," we have no qualms.

    The problem this and my story has for the American economy is: the US economy is based upon people buying crap and living beyond their means.

    • mac5star

      Agree, PI; wars do not pay for themselves. Until Irag and Afghanistan, the US raised taxes to pay for every major war we were in. I know raising taxes isn't very popular with the Teabagger Society, but how can we justify having the largest, most expensive military in the world otherwise? Oh, that's right, take away all assistance to the needy; how silly of me.

  • jj

    If I can borrow money at 3%, and get 7% or more from investments, why not incur the debt? I'm 4% ahead of the game. Dave's program might work for some people, but if you're wise about money, investments, and living within your means, you'll be better off to use Other People's Money. OPM has made many a millionaire.

  • Monica Wilson

    incredibly inspired by your story!

  • Holly

    This article has a lot of good points, but it would be impossible or a lot harder for most of the readers who live in areas where real estate is not so inexpensive, who don't have a second salary or a living wage to live debt free. In some areas of the U.S., if you make around 50K/ year, you have to spend more than half your take home pay just for the least expensive place to live besides getting government subsidized rent. If every area had real estate prices like Texas, more people could live debt free, but that's not a possibility for most.

  • NHcitizen

    In NH, you can find homes that need serious work for 160,000. Now top that with taxes and insurance. By the way, NH taxes and insurance on that home would be approximately 450 a month. So lets compare, they put down 14000 on the mortgage, so 160-14= 146 thousand 15 year note at 3.5 %.=1043 add PMI, about 100. add taxes and insurance 450. All total 1593.Far cry from the 600 payment!

  • Tracy

    The home prices in Texas are lower then anywhere else.
    I was there in 1998 and my friend wanted to sell her house and move to Seattle,wa,where I live.I was curious how much is she selling for and I asked her -the answer was $ 40.000 (fourty thousend dollars)for 3 .I taught that she was joking but she wasn't.That was THE PRICE IN Texas ,Dallas -Mesquiite.
    She could not buy a garage in Seattle for this money .Prices here were 220.000 for

    fixer upper.She could not believe so she came here .and of course went back to Dallas with the money and mind set for 4 bdr house ,2 story with the swimming pool in the back yard.So here is the true story about people life and what they have to spend depends where they live.I guess we have to live frugal life everywhere in order to be alive and well and not become homeless.