How I've Never Paid Interest
The view from the roof of my mortgage-free house
One huge advantage that helped me retire early was that I’ve never had interest-generating debt, for anything, in my life, ever. I thought this was fairly normal, in the way that everyone thinks they are a normal person, but later learned that it is definitely not, at least for Americans. In this nice infographic (from 2009, but I don’t think much has changed for the better since then..), it shows that Americans pay on average over $600,000 in interest over their lives, which is just crazy to me.
I’ve avoided the drag of debt a couple of ways: privilege, luck, ignorance, strategery (this is apparently a real word now - remember when we thought W was the dumbest man who could ever be president?), and a little discipline and hard work. The underlying motivation is probably my deep fear of commitment...but that’s a whole other issue. While maybe not everyone can follow my exact path, the point here is that where there is a will there is a way, especially if you are willing to challenge traditional paths and conventions.
Credit Cards - Rewards only please!
When I started driving, my parents put me as a user on one of their credit cards ‘in case of emergency’. By 16 I already had a bank account (actually I think I opened it when I was 8 or 9…) and debit card, which I used for all my personal expenses like clothes, gas, outings with friends, etc.
The only times I can remember using the emergency card was when my car broke down in South Carolina (more on that coming up) and once when I was in Germany and my dad said I should stop eating all my meals at grocery stores (thanks Rick Steeves!) and go to a real restaurant - sadly that was after spending two weeks in France and Italy, where I could have gotten something more exciting than schnitzel...
I got my own credit card after graduating from college, according to my credit report, because I don’t really have a memory of it. I vaguely remember being told by someone, maybe my parents, that I should build my credit history and that’s why I got one before moving to France. In France I was paid into a French bank account with a debit card - almost no one had credit cards in France at the time. I only used the credit card for big things like plane tickets and had auto-pay for the statement balance.
I upgraded in 2014 to a Capital One Signature 1.5% cashback card, when I was living in Laos and there were places that actually took credit cards (unlike in Mali, where it was only cash). Still have that one. While we were building our house in Mexico, I did a bit of credit card churning, where you open a new card and spend a certain amount in the first month or so and get a bonus in cash or travel.
We opted for travel-based cards as they don’t have foreign transaction fees (a must for expats!), and also usually the best rewards (for people who travel). After getting the bonus, I would downgrade to a version with no annual fee or cancel it. We did this with a couple of cards and made a couple of thousand dollars on travel we were going to do anyway.
The only card from the churning that I still have is a Barclaycard Arrival Plus, which does have a $90 annual fee (which I tried to negotiate but failed…) but gives 2.1% on everything that you can use to reimburse travel costs on the card. There are other cards that have more cashback on certain types of purchases, but these categories don’t usually work overseas which makes them less attractive for me.
The Barclaycard is the main one we use now, keeping the no-fee Capital One card as well since one is a Mastercard and one is a Visa. These cards have consistently worked for us around the world, without calling them to tell them we are traveling - another must for expats and frequent travelers.
I use Mint to make sure we always have enough cash in our checking account to autopay our credit card bills in full. I also use it to review our transactions every few days and make sure they are correct and see how much we are spending overall and if any categories of spending are too high. As of today, Mint says my credit score is 795. Thanks, Mint!
What’s a Car Loan?
I had no idea you could get a car without just paying for it all at once until, I think, I started reading about people having their cars repossessed during the Great Recession. Yup, in my mid-twenties. I had seen all those car/truck/SUV commercials with all the $X down, something something APR - I just did not care about cars and never bothered to find out what that was all about.
My first car when I was in high school was a beat-up hand-me-down from my dad, a 1990-something Mazda 626. Once I had the gall to turn on the AC during a 4-hour drive to South Carolina in July, and it burned up the power steering belt. It was so hot. And hard to steer. Took several days and probably more than the car was worth to fix it in a creepy mechanic shop in rural South Carolina that had way more rusted out cars with no wheels than actual working cars.
The first car I bought when I was in college (my uncle knew a guy, which looking back sounds sketchy but I don’t think it was...). It was a nice used Honda Civic and I paid for half, my parents paid the other half as a high school graduation gift- the luck of being born into a family that was good with money. I sold that car to a girl I used to babysit for when I moved to France after college, and have never owned a car in the US since.
For eight years I was car-free, always living close enough to walk or bike to work. Then I moved to Laos and bought a used Honda Odyssey minivan, similar to the one my mother drove, from an expat colleague, because there was nowhere close to the office to live, my Lao skills were, to say the least, terrible, and Uber didn’t exist yet.
In Mexico, we bought a used 2013 Nissan Altima, and we currently have a 2007 BMW X3 in Tanzania which we imported used from Japan. Man who Works somehow convinced me the BMW was a good deal because import taxes were lower than for Toyota SUVs...I feel guilty about owning an SUV at all but at least we did have a little justification for driving one there, since many of the roads are not paved and become mostly potholes during rainy season...but still.
When we left Tanzania, it was in the shop waiting for a part from Germany - side note, never buy a car that is not a Toyota in Africa, there are no spare parts! Since Man who Works’ parents never got around to selling our Nissan, we have two cars on two continents at the moment, but will be selling the BMW as soon as it is fixed.
So I’ve never owned a new car, which turns out is a pretty smart financial move. They depreciate a ton as soon as you drive them off the lot- and then with a car loan, you are pouring money into something that is worth less every day. We also have never had more than one car (per continent) for our family, relying on public transport and now Uber when we both need to be in different places at the same time.
I’m looking forward to not owning a car at all in China - the hassle of insurance, repairs, being pulled over for driving while foreign, Man who Works locking all the keys and money and phones in the car and having to break a window to get them out...I’m so over it. I always look for places to rent that are within walking distance of at least a grocery store!
Paying for College and Grad School
I have a BS in Chemistry from a small private university that since I graduated 14 years ago has DOUBLED tuition and a Masters in Public Health from a large public university. I didn’t take out any loans for either. For both degrees, I only applied to one school, and luckily got in to both.
For undergrad, I applied early decision to a school that had a good Chemistry program, was a reasonable distance from home, and of course, had nice landscaping. Since my family was too good with money, we didn’t qualify for any need-based aid. My dad even bought a new mid-life crisis red convertible to reduce our liquid assets, to no avail.
My parents made me save half of everything I earned for college since I was 11. I did a lot of babysitting, lifeguarding, and working in my dad’s lab because I was really cool in high school, so I had a fair amount saved. They told me they would pay 75% of year 1, 50% of year 2, and 25% of year 3. Any scholarships would count towards my contribution, and if I needed a loan they would give me favorable interest rates.
I was a good student in high school with decent SAT scores and was selected to compete for the university’s largest scholarship: full tuition, room and board, fees, and even books, funded by a potato chip magnate who had dropped out of said university in the 1920s. I got it, I’m pretty sure because I was the most diverse candidate. How could a middle-class white girl be the most diverse person competing for a scholarship? This university was formerly Southern Baptist and about 95% Republican, and I am a liberal agnostic. People more diverse than me just didn’t apply there at all. It was a weird place.
I used my savings to buy half of that used Honda Civic and spend three weeks in Europe with plenty to spare - which I mostly kept in a savings account and some CDs for most of college. Looking back now I don’t know why my father, who knows these kinds of things, didn’t talk to me about investing back then. I will not make that mistake with my daughter.
I managed to pick up a faculty-appointed Chemistry fellowship on top of my scholarship that funded my summer research, yet by the end of college, I knew lab work wasn’t for me. I discovered public health too late in my senior year to go straight into my MPH, which turned out to be a blessing. I traveled around the world, living in France, Ghana, South Africa, India, and China for two years, volunteering with small public health organizations bookended by teaching English to earn some money.
The MPH program at the state university in my hometown was highly rated and required two years of work experience, so at the end of my world tour I applied, was waitlisted, and eventually got in. There were other programs I looked at too, but at this school I could get in-state tuition and live with my parents, as opposed to shelling out tens of thousands for a degree that wasn’t super high-earning.
I got a small scholarship my first year, had a part-time job, ate my parents’ food and lived rent-free. Instead of taking the usual two years, I wrote my thesis over the summer and took extra classes so I finished in only three semesters, saving money and giving me a head start at job hunting during the Great Recession.
Thanks for the Loans Tia, Mom and Home Depot
I was very lucky to meet Man who Works for many reasons. One is that his family-owned land in a lovely part of Mexico and his parents used to have a construction supplies company. With the cash savings that we both had amassed during our overseas jobs in places where there is nothing to buy, we were able to buy land from his aunt with an interest-free monthly payment plan.
Interest rates for mortgages or construction are very high in Mexico, as is the case in many developing countries, so people build brick by brick as they can afford it. It took us almost two years to build our house, partially because Guanajuato is a historic city full of ‘callejons’ - steep alleys only accessible by foot. All the bricks, cement, giant rocks, etc had to be carried up to the building site and all the digging done by hand.
His father bought materials and supervised the construction, while we spent my maternity leave in our used Altima with our newborn in the back searching for the best value on tiles, toilets, appliances, countertops, cabinets, and so so many other things. Toilet paper holders are stupidly expensive- I couldn’t bring myself to buy them until two years after the house was finished.
We got a Home Depot credit card with “Meses Sin Intereses” - something I thought could not possibly be true but turned out to be real- because in Mexico everyone is building like us, with cash, so this is a way people can afford the big-ticket items. We bought most appliances and other such expensive things during sale weekends and paid them off over 18 months, interest-free.
Spreading the costs over several years through both the family land payment plan and Home Depot credit card, while living rent-free in a family-owned apartment, allowed us to put most of my income for those years into the house (Man who Works was starting his start-up, so spent more money than he made). I backed off my retirement fund contributions since I wasn’t paying taxes in the US anyway, and was frugal with a vengeance on all our other expenses.
After about a year and a half of full-on construction, we were getting close to the end of our cash, especially with the start-up expenses (which we also did not take any loans for - I do not recommend launching a start-up and building a house at the same time!), my parents gave us an interest-free loan of $10k to finish up, which we paid back a few years later.
We built two apartments attached to our house since the additional cost was minimal and our area is a year-round destination for both domestic and international tourism, so the income from renting those also helped pay off the trailing Home Depot expenses. This version of house-hacking was also a key ingredient in my early retirement plan, and hopefully, at least domestic tourists will soon return.
Overall, about half of my debt-avoidance I owe to the randomness of being born to frugal but well-off parents who both instilled in me a fear of spending money and have helped me out financially at a few key points in my life, and the other half from spending most of my adult life in developing countries where access to easy, ‘cheap’ credit just doesn’t exist. There was no master plan, just an innate dread of owing money to someone else that has always guided my decision making.