Paying Off Credit Card Debt or Mortgage First?
A quick, life-changing pop quiz: Which is best, pay your mortgage off first or your credit card debt?
If you’re a fan of Dave Ramsey and his debt snowball, you no doubt answered, “Credit card! Get those quick wins in the debt pay down and work to get that high-interest debt gone and then tackle the mortgage.”
You’re wrong, but it’s not your fault!
While I’m a big fan of Ramsey – he has after all helped many people get out of debt and stay out of debt – I believe he’s mistaken.
The debt snowball tackles revolving credit first (credit cards), and saves the mortgage for last.
Don’t get me wrong, getting rid of high-interest credit debt truly is a wonderful thing!
For example, if you have credit card debt of $22,500 spread over four cards, it probably would take you more than FIVE years (65 months) to pay off all your revolving debt using a similar “snowball debt” pay off system.* What’s more, you would have paid off a total of $36, 191.13 (including $13,691.13 – or almost half of your total amount – in interest alone)!
Yet you’re not really debt free. You still may have car loans, student loans, medical debt, not to mention that mortgage weighing on you.
But let’s say that you’re fortunate and that now that you have paid off your credit cards, you have no other debt than a mortgage. Some people refer to this as being debt free, but you’re not: you’re still paying a mortgage and – here’s the ugly kicker: most of the money you pay each month goes to interest.
Get Out of Debt Completely
In fact, let’s say you have a 30-year, $200,000 mortgage and are paying 4.5 percent interest. You’re payments probably are $1,031 a month. Let’s break down your interest and principal payments:
- Year 1: about $12K paid, yet almost $9K ($8,934) went to interest payments (not your loan amount). In other words 73 percent of what you’ve been paying has not gone to the principal on your loan, just to the interest.
- Year 2: about $12K paid, yet $8,700 went to interest (not the principal). Of your $12K paid that year, 72 percent of it went toward interest only.
When will your monthly payment be split about evenly between principal and mortgage? In year 15! In other words, for 15 years, you will have been paying more in interest than in paying down the loan amount.
- Year 20: you still owe about $97K on the principal. Which means you’ve paid almost half of your loan amount in interest only.
- Year 30: You finally pay off your mortgage and you’re fully debt free! But instead of paying $200K on the mortgage, you paid a total of $365K, with $164,813 of that in interest.
In other words, you will have paid more than 82 percent of what you originally borrowed ($200K) in interest alone!
Back to Our Pop Quiz
So, which is better: pay credit card down or pay mortgage down first?
The answer really is….both!
The all-in-one financial GPS system can help you pay off all of your loans, including credit card debt, student loans, medical loans, car loans, and your mortgage in less than 10 years. Plus, you’d save tens of thousands of dollars or even hundreds of thousands of dollars in interest payments.
There’s no debt snowball. No loan consolidations. You use your current discretionary income (after all monthly costs are paid, including bills, loans and fun)
I know: this sounds too good to be true. But I use it and my wife and I have gone from 17 years of debt to just under two in just two and half years and we were so impressed with how effortless it has been to follow the system and how quickly we’ve been paying down our own debt that we decided we had to start Smart Debt and help others pay down their debt quickly – keeping their own money rather than giving it to lenders – and then build real wealth while they do so.
Take a look at this 12-minute video that explains how this system works and how it takes you from debt-laden to entirely debt-free in less than 10 years (possibly sooner) with little or no change to how your live your life now.
My team and I would like to offer you a free consultation and demonstration on how the Debt Shredder works using your particular situation (we leave you with your personalized debt-reduction report).
I hope you will contact me today to learn more.