Pay Off Mortgage Before Credit Cards?
By Ryan Healy | January 9, 2008
Today I went to my weekly Wednesday breakfast with my friend Kevin and brothers Jared and Justin. Kevin mentioned that his wife had gone to a MOPS meeting where she saw a presentation by Bob Marette on how to become debt-free in 5-7 years, including paying off the mortgage.
According to the photocopied guide Kevin brought with him, Marette recommends making minimum payments on credit cards and focusing on paying off the mortgage first. It’s an interesting concept.
If a person pays down credit card balances, it is easy to backslide and start using the cards again. But with a mortgage, all the money you put toward principal is effectively “locked up”; you can’t touch it without taking a second mortgage. This would help prevent a person from sliding back into debt.
Also, the interest you pay on a mortgage is actually much higher than the nominal rate because it is compound interest. What’s more, payments are weighted on the front end. So when making payments on a new mortgage, your interest rate per payment is more like 80% to 90%. So I could see that paying down the mortgage first could save you quite a bit in interest expenses… perhaps as much or more than paying down credit cards first.
I imagine that once the mortgage is paid off, it would be extremely easy to pay off the remaining credit card balances. A few months maybe? With $1,200 to $2,5000 extra per month, most people could pay off all their credit card debt in six months or less.
Obviously, I haven’t examined this idea critically. I haven’t taken the time to do any calculations. I’m speaking broadly of the benefits of this approach based on my own reasoning.
What do you think? Better to pay off the mortgage or credit cards first?
Popularity: 3% [?]
Want more quality articles about debt reduction and living debt-free? Then make sure you join my email list or subscribe to my RSS feed!
Topics: Credit Cards, Mortgages |
June 14th, 2008 at 8:43 pm
It is far too easy to get a home equity loan for that to make any sense. High interest non-deductible debt first.