Financial decisions can be difficult, and extra money can often be as stressful as it is a relief.
With extra money comes the responsibility to use your finances wisely. When you have any debt and especially when you have multiple debts, deciding what payments to make first can be tricky.
Tricky because you want to keep more of your own money rather than this swallowed by debt.
But the one reason that we have debt problems and worry all the time is simple.
We don’t have the right information to take care of this. And this leads to stress and sometimes depression.
Okay let’s tackle the question around debt.
What mistakes are you making?
Let me ask you a quick question.
Let’s assume you have a credit card with 20% interest, a department store card of 11% interest, and a mortgage of 20% interest.
What would you pay off first?
Many people want to pay off their high interest rate debt first.
This reaction makes sense given that there aren’t many things that can cause a sinking feeling like the one you feel when you read your credit card statement. You may be struck by the disheartening reality of how much you are paying in interest.
This awful feeling is heightened if you have fallen even only slightly behind in your payments and your interest rates skyrocket. It’s easy to feel a sense of hopelessness.
How can you ever expect to get ahead when interest keeps pushing you back?
It’s a normal reaction to want to pay high interest rate credit card debt off before making other payments with lower interest rates, such as your mortgage.
However, while trying to do damage control on high interest debt seems like the best way to keep from getting further behind, you may be costing yourself more in the long run by making your mortgage payoff less of a priority.
It often takes decades to pay off mortgage debt, and that is a lot of time for interest to accrue.
Paying off your high interest debt first in many cases have shown that once the debt is paid off, most homeowners just keep adding on more debt to the credit card and the cycle starts all over again.
The key is to do both at the same time and not choosing one type of debt over another.
While you may think you are paying a fixed interest rate and a fixed payment, how much interest you pay actually depends on when you make your payments.
Since interest accrues on the principal balance of your mortgage, the lower the balance, the more you are paying toward the principal as opposed to interest, which means your mortgage payoff can happen more quickly.
A method called mortgage acceleration is becoming more and more popular as people become educated about it.
Using a calculator, you can determine how much you can save without spending a cent more or refinancing on your mortgage.
Financial calculators and resources are easy to find online and can help you work toward mortgage payoff and debt payoff in the most strategic way possible.
There are other options for combating your debt and move closer to a mortgage payoff.
You may be able to transfer high rate credit cards onto cards with lower rates, or better yet, onto cards with zero rates. You can also try consolidating your highest or higher rate credit card into your mortgage and then don’t use that credit card again.
Ultimately, researching mortgage acceleration may result in a quicker debt payoff which will save you money and stress.