Nina's Soap

Most financial advisor you tell you to pay yourself first before others. Because of the compound interest effect on investments, they advise to invest money while you try to pay off your debts.

If your employer match your 401K, it is a good idea to contribute to your 401K up to the maximum your employer would match. Then hold on investing in your IRA or Roth or brokerage accounts if you are in debts until you pay them off. You won’t miss much.  In the stock market you could lose money or not earn as much as you pay in interest on your debts. In case the stock market goes down, your investments would go down but your debts would still be there and be expected to be paid every month.

It is advised to save 6 to 12 months expenses as emergency funds. If you have debts to paid every month including your mortgage, credit cards, tuition and car loans, the amount to save to come up with 6-12 months of your monthly expenses is a lot and it would takes time to same that much. If all your debts are paid off, then you don’t need much to meet your needs every much.

Also paying off debts relieve you from stress as no one can make you and your family homeless for defaulting on your mortgage due to a life event like a loss of job.

I used to invest in stocks while I was paying my debts. My husband suggested at one point that we focus all our resources into paying off our debts first but I disagreed with him. I wanted to do both at the same time and I did it for some years. I remarked later that it didn’t make sense to pay 15% interest on my credit card debts when I don’t earn that much on my investments every year. Then I allocated all my money toward the debts and paid them off. I paid over $8,000 in interest on a credit card debt little over $9,000 within 8 years’ time frame. In a sense I earned indirectly as I didn’t have to pay 15% anymore on credit card debts.

Do you want to pay off your credit Cards early?

Throw all your savings at them.

In case of an emergency, use your credit card to take care of it. But make sure it is an emergency.

Set an amount to pay every month and start with the low balance regardless of the interest rate. Once the low balance is paid off, roll the amount used to the next low balance until all is paid off. Paying the low balance first allows you to eliminate the number of cards to pay every month and you get to see a decrease of your debts amount as well.

Sometimes transferring to a 0% interest card helps but make sure you don’t open too many new cards. Once a card is paid off, you can receive a 0% balance transfer promotion you could use to transfer the next low balance to and pay it off to save on interest it would have cost you otherwise.

Pay your mortgage in less than 30 years:

Same rule applies to mortgage as well. If you have a 30 year- loan on your house, by the time you pay it off, you would have paid close to three times the cost of your house. Why not paying it off early and save twice as much as your house to yourself?

Some like to refinance. It does cost if you decide to refinance your house to 15 year- loan. You could achieve the same result by increasing your monthly mortgage by an additional principal. To simply put it, pay twice the principal in every mortgage payment you make and you would paid it off within 15 years. Or triple your minimum principal included in your mortgage payment and you could pay it off within 10 years.

After you pay off your consumer debts, roll that same amount to your mortgage. Add your raises and before you know it you would pay it off. If you get huge tax return, save it for your emergency funds.

Since my husband and I purchased our house few years ago, we have been increasing our monthly mortgage every year. We are paying twice the minimum principal every month. Few months ago, a company contacted us to convince us to refinance our mortgage from a 30 year-loan to 15 year- loan. After running the numbers with him, the mortgage would be less that what we have been paying every month, but the interest decrease is less than 1% and we will pay a closing cost of about 5% of the house’s remaining balance. It would cost us more to refinance the house than to just leave it as it is and try to pay it early.

Before you refinance your house please check the numbers well. You might just be better off not to refinance.