---
title: 'The Debt-Free Mistake I Almost Made'
source: 'https://youtube.com/watch?v=9TwzN5wak8A'
video_id: '9TwzN5wak8A'
date: 2026-09-09
duration_sec: 963
channel: 'Graham Stephan'
---

# The Debt-Free Mistake I Almost Made

> Source: [The Debt-Free Mistake I Almost Made](https://youtube.com/watch?v=9TwzN5wak8A)

## Summary

Financial educator Graham Stephan challenges his long-held belief that paying off low-interest debt is a mistake. He shares his personal experience of paying off three mortgages and the unexpected mental relief it brought, arguing that the psychological benefits of being debt-free can outweigh the mathematical advantages of investing. He balances this with research on the importance of cash liquidity and provides a practical framework for listeners to decide what's best for their own financial peace of mind.

### Key Points

- **A Change of Heart on Debt** [00:12] — Graham admits that after years of advocating for arbitrage, he paid off three low-interest mortgages and felt a huge weight lifted, challenging his previous stance.
- **The Popularity of Being Debt-Free** [00:52] — A Twitter poll with nearly 4 million views showed that almost nobody regretted paying off their low-interest mortgage, suggesting a widespread psychological benefit.
- **The Psychology of Finance** [11:31] — Research indicates that feelings about finances are as important to happiness as job, health, and relationships, suggesting mental clarity is a key factor.
- **The Value of Cash Liquidity** [12:12] — Studies show that cash on hand predicts life satisfaction better than income or net worth, emphasizing the need for a cash buffer before paying down debt.
- **A Balanced Approach to Debt** [14:45] — Graham suggests a practical order: build an emergency fund, take the 401k match, pay down high-interest debt, and only then consider paying off a low-interest mortgage.

## Transcript

What's up, you guys? It's Graham here. So, I'm going to take a huge risk on this video, because it goes against everything that I have ever said. But I'll be honest, after years of telling people not to pay off low interest rate debt
and arbitrage your money in the market to make more money instead, I'm starting to think that maybe I was wrong. Like, mathematically, we all know it makes sense not to pay off the 3% mortgage,
because you could earn way more money in the stock market. And below a certain point, it's pretty much like getting free money. But recently, I did the unthinkable. I got rid of three super low interest rate mortgages that I never thought I would do.
And as soon as they were gone, it just felt like a weight was lifted off my shoulders in a way that I never thought was possible before. And apparently, I'm not alone. I asked on Twitter if anyone ever regretted paying off their low interest rate mortgage.
And believe it or not, from almost 4 million views and 1,500 replies, almost nobody said yes. That's why, for the first time here on the channel, if you have a mortgage, a car payment, a student loan, or really any debt whatsoever,
watch this video before deciding what to do with it. Because I'll show you the part about being debt-free that no one puts into a calculator. And I promise, once you see it, you're never going to be money the same way again.
And also, big thank you to Policy Genius for sponsoring this video. But, more on that later. To start, I know it sounds a bit weird to come full circle here, but growing up, I was taught that all forms of debt were bad. that credit cards were a trap. Loans were for people who couldn't afford things. And if you
couldn't buy something outright in cash, you shouldn't be buying it. That was basically my entire financial education before turning 18. So I never had a credit card. I never had payments on anything. I had a basic debit card and a savings account, and I thought I was doing
everything perfectly. That was until I turned 21 years old. I'd been working as a real estate agent for about four years, saving up all of my commissions. And I wanted to start buying real estate because back then it was like 2011 and homes were selling really cheap. I'm talking
under $100,000. So my thought was, oh great, if I have $100,000, I can either buy one house outright in cash or I can use that as a down payment to buy three properties. And if those
properties make a 15% return and my mortgage is 5%, ooh, that's going to be easy. I'll be rich. You know, what's funny is that at the time I thought that I would be the perfect borrower because I never needed credit.
I never needed the payment. I was just paying everything out right in cash. And I thought they'd love me. So I went and applied, and I'll never forget, just instantly denied. It wasn't because of my tax returns or I couldn't afford it, didn't have the money.
It was purely because I didn't have any credit history whatsoever. I'll never forget. But that was the day that my entire philosophy flipped, that credit and debt weren't to be avoided. It was just a tool to be used just like anything else.
And if you play this system and you use it to your advantage, that tool could eventually make you millions of dollars. For myself, that meant that when I was 21 years old, buying houses at $60,000 a pop,
instead of buying three outright in cash, which I wound up doing, I could have purchased 12 with 25% down, that today would have been worth about eight times more than what I spent. Like when it comes to debt, the only thing that really matters is just the spread.
If I could borrow money at 5% and invest it into something making 12%, that's 7% that I earned for money that was never mine to begin with. And once I realized this, my entire life changed.
Without exaggeration, I spent the next few years opening up as many credit cards as I possibly could. I found every trick in the book to boost my credit score as quickly as possible. And pretty soon after that, banks started giving me mortgages.
My first one was on an $800,000 property in West Los Angeles, and I locked in 30 years at 3.375%. I then bought a duplex a few miles away from that with a 3 interest rate I bought another duplex after that for 3 To me at the time it didn make any sense why anyone would ever get rid of that mortgage or pay it off early
For example, let's just say I bought a $600,000 duplex with 20% down. Interest rate is fixed at 3.5%, but the property made a net 8% return from rent. That meant that I'd be making 4.5% right off the top for free,
and then if that property goes up in value, 5%, I'd be making an additional $30,000 on my original $120,000 investment, which works out to a 25% return. To me, this is all just basic math, because if the property goes up in value, I make money.
If the property cash flows, I make money. If anything, it makes sense to have as little of my own money in the deal as possible, because the more money I have tied up in a deal, the less money I have left over to buy something else to make even more money with someone else's money.
Without exaggeration, it is this strategy that I used to make millions of dollars over about a decade just because I had access to really cheap money from the bank, because I had a good credit score.
Plus, in my mind, this was incredibly safe because the mortgages were fixed for 30 years, the rates could never go up, my rents were really stable, and inflation was actively eating away at the debt.
because if my interest rate was 3%, but inflation was also 3%, it kind of cancels each other out, and I was basically just getting free money. That's why when anyone would ever ask me, Hey, Graham, should I pay off my 3.5% mortgage early?
My answer is always, absolutely not. Do not pay off that mortgage early. That is the cheapest money you're ever going to have access to in your entire life. Instead, just invest the difference in the S&P 500,
and over the long term, over the next 20 years, you're going to have so much more money than what you would have put into property. So much more, in fact, that you'd have money left over to pay off the mortgage in full with money left over to do with whatever you want.
Now, I've said that for about 10 years now until I recently paid off three super low interest rate mortgages as low as 2.875% fixed for 30 years when I sold those properties.
And once I did, everything changed. So in terms of what happened after the debt was gone, And most surprisingly, why no one regrets paying off their low-interest rate mortgage, here's what you can do.
But before we go into that, getting peace of mind goes way beyond just paying off a mortgage. Because at the end of the day, you could be doing everything correctly, but if you still have people financially relying on you and something unexpected happens,
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free life insurance quotes from top companies and see how much you could save Again that policyjunius slash Graham with the link below Thank you so much and now let get back to the video All right, so in terms of what happened after I got rid of those low-interest mortgages,
I never thought I would say this, but for the first time ever, I kind of started to think that maybe Dave Ramsey has a point. See, here's the thing. On paper, debt with a positive expected value is just a number.
If the spread works and you make money, great. If it doesn't, it doesn't. The math is the math. There's nothing left to think about. And that's how he calculated practically everything over the last 20 years. Except his brain doesn't treat it that way.
For instance, even though everything was on auto payment, I never accounted for the fact that every single mortgage became its own mini ecosystem of thinking, where if a tenant moved out, I still got to pay the mortgage,
and I factor that in my take-home pay. If I sell, I still need to factor in the mortgage repayment in terms of what I get back after selling. It's the fact that there is this large outstanding obligation that doesn't care if your income goes down,
if you lose your job, if the tenants stop paying. It's still there. Honestly, I didn't even think this would be a thing until I started selling off my real estate. I'm talking the ones with 2.875% mortgages fixed for 30 years.
and once those were sold and I saw the debt category on my Rocket Money account drop by millions of dollars, it just felt like an odd sign of relief.
Like, I wasn't worried about, like, not making the mortgage payments or anything, but just seeing the debt category go down was a really good freeing feeling for some reason. I feel like I'm doing a really bad job at describing what it was like,
but it was as though something was taking up mental space in my head that I didn't even know existed until it was gone and then when it was gone, even though, again, mathematically it was the wrong choice to give up low interest rate mortgages
just felt really nice. Now naturally, I started to think that maybe this is just me and I've got a lot going on and this is one fewer thing to think about, I'm the exception but when I started doing research on it
There's a lot of positive impacts of paying off debt that I had no idea even existed. Like one piece of research found that after paying off debt, nearly all the people were less anxious, made better decisions,
and performed better on cognitive tests. And what's crazy is that this wasn't just a low-income thing. Even high earners found improved cognitive abilities after paying off debt, and it wasn't just the amount of debt either.
It was the number of accounts, regardless of how small they were or the interest rate of the debt. That is why when it comes to the final piece of paying off your loan, it really just comes down to freedom. Look, to be totally fair, paying off a 3% mortgage is not a financial decision.
It's an emotional one. Like, I spent the last 10 years treating this as an optimization problem. Like, when you look at a 3% loan, and you compare that to investing a difference in the stock market,
the mortgage wins, hands down, and it's not even close. But that is not the full picture, because what you are actually buying by paying down the loan. It's hard to put a price on this, but it's simply peace of mind.
Again, there is research on this too. Like, even though a $2,000 payment is a $2,000 payment that you could leverage into the market to make more than $2,000, in reality, that $2,000 payment is just another thing
that you mentally have to keep track of. As pros of this, one study found that how people felt about their finances was just as important to overall happiness as their job, health, and relationships combined.
So in a way, for more than a decade, I was trading simplicity and a little extra stress for a few extra percentage points in the market. And after a while, I started to realize that maximizing returns stopped becoming as important
as trying to get as much mental clarity and peacefulness as possible However I also recognize that there has to be a balance here because in terms of being debt one other study found that cash on hand predicted life satisfaction better than income
better than investments, and better than net worth. Basically, if you take all of your money and you pay down the mortgage with it, leaving you with nothing left over, that's not good either, because you're taking the most liquid thing that you have, cash,
and putting it into the least liquid thing that you have, a house. And it's hard to undo it once you make that transfer. It's not like you could call up your mortgage company and say, hey, money's a little tight again. I need that $50,000 back.
They're not going to do it. This is all to say that in terms of mental clarity, the best thing that you could do is simply maintain a cash buffer on the sides at all times, no matter what, and then pay down debt second. There was also a paper done by the Journal of Public Economics,
which looked at households who were voluntarily paying down their mortgage instead of maximizing the tax-advantaged retirement accounts. And it was found that about 38% of them were making the wrong choice,
costing them somewhere between $0.11 and $0.17 on every single dollar, all because they felt that the mortgage was the safer option. So all of that means that if you have a 401k match you're not taking or a 24% interest rate credit card you're not paying down,
it's probably not a good idea to pay down the 3% mortgage. But if you want peace of mind after already getting the rest of your financial rights in order, then perhaps paying down a mortgage does start to make sense if you value mental peace of mind.
Although, in terms of what I think about all of this, and in what I'm doing for the future, here's what you came for. Honestly, I think the answer is that everyone handles it differently, and that's totally fine. I know some people with hundreds of millions of dollars of debt, and they sleep perfectly fine,
while other people don't even want to have a car payment. Neither of them is right or wrong, but at least for me as I've gotten older, just the optimization of every rate, every dollar, every spread, stops becoming as enjoyable and starts becoming just another thing to think about and stress about.
At a certain point, you really just have to ask yourself what all of this is eventually for. Is it to get the biggest bank account possible? In which case, arbitrage as much as you can. Never get rid of that low-interest rate mortgage.
but for me it's just about having a shorter list of things to think about and fewer files to send the CPA at the end of the year. And if I ever moved in the future, I'd now strongly consider just paying off the mortgage early,
because so far getting rid of the other mortgages has just felt incredible. Of course, in terms of my advice for everyone watching, because there's always got to be a takeaway here, I think practically number one, you always want to put an emergency fund at the sidelines that you never touch.
Then after that, take the employer 401k match, if you have it. Then after that, pay down any high interest rate debt or credit cards that you have. And then once you have the rest of your financial life in order,
consider paying down the mortgage if that's something that's important to you. And look, if you're fine arbitraging the difference, because again, mathematically, it makes no sense to pay off really any debt below like 4, 4.5%,
more power to you. I agree with you. I think logically that makes sense. But there's also a component of mental clarity that I think is hugely underrated. And that's something I never fully considered until just recently.
Anyway, if you made it this far in the video, I really appreciate it. Leave a comment down below. If you've ever paid off low interest rate debt early and you regret it, tell me. Or if you don't and you have a paid off house and you're like, this is the best decision ever.
I don't care that I could have made more money in the market. Let me know that too down below in the comment section. as always don't forget to hit the like button subscribe and if you want early access to videos like this as well as bonus content every single week that I don't post publicly feel free to join
as a channel member you also get priority responses to comments if you leave me a comment guaranteed I will see it and I'll do my best to respond so with that said thank you so much and until next time