If you are one of the lucky few that have extra cash on hand or are in a particularly secure financial position, congratulations. In these tough times, managing money effectively can be challenging, even if you aren’t at risk of foreclosure or credit debt trouble. One thing people consider when they have extra money lying around is paying off their mortgage early. While this can be a great benefit, there are some things to consider first.
Take Your Time
Paying down your mortgage before the original loan term is a sound financial goal. However, it isn’t necessarily the best thing to do with your extra money.
Take a look at your other debt accounts. Do you carry balances higher than 40 percent of the limit? If so, make reducing these debts your priority first. It is often credit debt that becomes a slippery slope when financial goals ignore the importance of reducing high balances. Plus, reducing these balances is likely to boost your credit score, a benefit that always pays back quickly.
Also, evaluate your savings account(s). Do you have enough money saved to cover at least four or more months of essential living expenses? If not, then it is wise to work on building your emergency fund in the event that an unexpected financial hardship was to strike down the road. Not having this safety net can quickly threaten your ability to maintain your mortgage as it stands now, making foreclosure more of an imminent risk.
Last, examine your retirement. Do you have a retirement savings at all, or at least one that is going to lessen your dependence on government aid? If not, then certainly this should become an immediate financial goal. Reliance on Social Security help in the future is risky; therefore, you need to be putting at least half of your extra cash towards saving for retirement. Never let the goal of reducing your mortgage debt trump your priorities to protect your finances in the future.