Having debt can be overwhelming at times. When you are paying high interest rates on credit cards and getting only a 2 or 3 percent return on investment from your savings account or certificate of deposit, it seems logical to pay off debts rather than put money aside. However, according to Liz Pulliam Weston an author and finance columnist for MSN Money, while the impulse to own your home outright is strong, paying off your mortgage early might not be in your best financial interest.
First Steps
Before deciding what to do with your savings, Philip Brewer, a personal finance writer for Wisebread.com, suggests establishing an emergency fund. Use your savings to give you a cushion of three to six months should something catastrophic happen.
Compared with paying off a low-interest debt (like a mortgage), putting your money in a company 401k or even a mutual fund with at least an 8 percent overall return on investment would be preferable, according to Weston. A 401k with a company match is not only investing money but giving you money for free, and if you're not maximizing your contribution, you are leaving free money on the table.
Tackle the Plastic
If you're getting less in interest on your savings than you are paying in credit card debt, then tackling your plastic is probably the best choice to make, according to Weston. However, if you don't have credit card debt and you are looking to pay off your mortgage, consider putting that plan off until you are sure you have an adequate emergency fund, adequate life and medical insurance and disability coverage. The Bureau of Labor Statistics reports that fewer than 50 percent of all Americans have adequate disability insurance.
Keep the Cash
Weston and Brewer both suggest stockpiling your cash in retirement accounts, college funds and emergency funds rather than paying off your mortgage too soon. It's better to keep that money working for you.
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