There are good reasons why paying off debt is not a priority for me.
- Debt repayment is often the top financial priority.
- You can pay off your debt faster by paying extra.
- I won’t pay extra for the debt because it’s really not worth it.
Many financial experts advise paying off debt as soon as possible. This usually involves making additional monthly payments to reduce the principal balance more quickly. And sometimes this can be a good idea. If you have high-interest debt, such as credit card debt, you can save a lot of interest by paying off the balance in full as soon as possible.
But in my case, I’m not spending an extra dollar paying off my debt. Here’s why:
Paying off debt early is not a good financial goal for me
The reason I’m not making an effort to pay off my debt early is because of the type of debt I’m currently paying off. I also have no plans to borrow money for other purchases as I am paying off my credit card bills monthly and saving to pay cash for my car.
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The interest rate on my mortgage is very reasonable at 3.25% and the monthly payments on the mortgage are very affordable. The rate is fixed, so the rate will never change and your payout will never go up.
I have years left to pay off this loan and the ROI is simply the interest I’ve earned so there’s no reason to try and save time by making extra payments.S&P 500 index funds etc. You don’t want to waste a single dollar trying to pay off your mortgage ahead of schedule because you can invest in relatively safe investments and likely get at least double your return doing so.
We also know that by spending money towards that goal rather than an early return, we can get tax breaks on our retirement investments. When Itemize when you file your taxes so you can deduct mortgage interest. In other words, the government is subsidizing my mortgage, so my maintenance costs are even less.
Lastly, I have a fixed rate loan, so I know that inflation has made mortgages inherently cheaper over time. My monthly payments will be much less in 10 years than they are today.
For all these reasons, it’s better to spend the extra money than pay more on the remaining mortgage balance.
Should you try to pay off your debt ahead of schedule?
Early debt repayment doesn’t make sense to me, but that doesn’t mean it’s not a good financial goal for some people.
The big question is what gives the best ROI. If you have low-interest debt and can make more money by investing than by saving interest by paying it off early, you should pay the minimum amount of debt. If you’ve been charged and don’t think you can earn more than paying off your debt with a safe investment, focusing on paying off your debt is probably the right choice.
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