What’s the best financial decision you ever made? Was it to pay off your debts? Might it have been to start a budget? Or was it a great investment?
Pay off their mortgages
According to an article that appeared recently on the Yahoo! Finance website, 40% of the people age 55 and older said that their best financial decision ever was to pay off their mortgages. In second place at 40% in the over-65 group was that they started saving early. This was based on a survey done by Harris and Associates which also found that people age 25 to 54 said their most important financial decision was to start saving early while 56% reported “making sure that my family is protected”.
Later in their careers
As you might guess, the idea of paying off the mortgage became a higher priority later in people’s careers after they had amassed enough savings for an emergency and paid off other debt.
Does it really make sense?
While many people think that paying off their mortgage was their best decision, this isn’t necessarily true for everyone. If you’re not claiming a tax induction for the interest you pay on your mortgage then a 4% mortgage costs you 4%. However, if you are deducting the interest then a 4% mortgage actually costs you less than that – depending on your tax bracket.
Paying off debt vs. investing the money
If you’re in the 25 to 45 age bracket, and have a load of debt, you may be wondering whether your should pay it off or invest your money. Fortunately, there is a simple answer to this question. You need to first pay off your debts.
It’s just simple math
The reason why you should pay off your debts first just comes down to simple math. You need to add up the interest rates on your debts and then divide by their number to get an average interest rate. As an example of this, if you have debts with interest rates of 12%, 18%, and 20% your average interest rate would be 16.6%. Now compare that with what you could expect to earn on your savings. Let’s say you were getting an 8% return on your investments. This means that what you’re paying in interest charges far outstrips the earnings on your investments. So, the smart move would be to pay off your debts before you begin investing.
Secured or unsecured debts?
How you pay off your debts hinges on how much you owe and whether they are secured or unsecured. If you have a mortgage this is a secured debt because it’s “secured” by your house. Auto loans are also secured debts. Unsecured debts are those where you were not required to use any collateral to get the loan. These are typically credit card debts, medical bills and personal lines of credit.
How to pay off those debts
If all or most of your debts are unsecured and you owe less than $10,000, you might be able to consolidate them into a new unsecured loan. On the other hand, if you owe more than $10,000, you might have to get a secured loan. In the event you owe more than $10,000 and have nothing you could use as collateral you would have several choices. If you have a good credit record, you might still be able to get an unsecured loan or you could sign up for consumer credit counseling. The third option, debt settlement, is the only way to get debts reduced as well as consolidated. Debt settlement companies such as National Debt Relief have helped their customers save thousands and thousands of dollars and become debt free in 24 to 48 months – which is why it’s become the preferred option of many American families.
Click here to read the complete article on Yahoo! Finance