Should you Pay Off your Debt?
If you have ever owed anyone money before, you know the burden it can have held over your head. Also, it depends on who you owe money to whether or not it is a burden or at least how much of a burden it is. If you owe twenty dollars to your friend, probably interest free, you may feel less obliged to pay it back right away than if you owe a thousands dollars to an uncle at a 10 percent interest rate. It is not often that you borrow large sums of money from family and friends.
The more burdensome debts are not the ones you owe your friends and family. It is usually the larger debts with the higher interest rates. Credit cards are known to charge some of the highest interest rates, anywhere from 12% to 24% or more. This kind of debt can really build fast with such high interest rates.
The answer to the question, 'should you pay off your debt?' is a resounding yes. As an individual, you should work to pay off all your debt. If you are married and have a family, you have an even bigger obligation to pay off your debt. The more debt you have, the faster and longer it will grow and the less money you will have.
One argument is the tax deduction you get from your mortgage. The truth is you only get to deduct the interest you pay on your mortgage and when you deduct it, you only save a percentage. For example, if you paid $2,000 one year in interest on your mortgage and you are in the 15% tax bracket, you only get to save 15% of the $2,000 which is $300, not the whole $2,000. It's a limited amount of savings and you should not prolong mortgage expense beyond what you original set it up for.
Another argument with a mortgage is that you can invest any extra you would put towards paying it off and earn more than the interest rate. Even if it worked out this way, very few people would actually take the extra and invest it. If you can, then do it, but still pay it off in the 15 or 30 year mortgage you originally singed your mortgage as.
All other debt you should pay off as soon as you can. Credit cards, car loans, and other loans have high interest rates that you must pay down. Better yet, don't accumulate this debt to begin with. You don't need a brand new car, you can buy used, and you never need to use a credit card, but if you do, always pay off the balance at the end of every month.
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