Quote from @Michael Moreno:
Quote from @Erica Wright:
Hi Michael,
I always paid down debt and applied extra to my mortgage throughout my years only to learn that I should have kept my cash and invested.
Try snowballing your debt witht he highest interest rate paying it off and then adding that montly payment onto the next debt and so on. I agree with the others and would not focus on the mortgage at this time. You have a good rate and once the furniture/water softner is paid off you can apply extra towards the principal mortgage balance in the future.
Thanks for this advice Erica! I don't have any debt besides my mortgage (4.875% for 30 years), and my water softener (0% for 1 year) and furniture (0% for 2 years). Seems like most folks favor the liquidity aspect of building cash or investing it in more liquid assets for now.
The reason people are saying don't pay off the mortgage is because you are on a real estate investment site where having available cash to invest, and using equity, is important. You think of paying off a debt, but doing a refi, or getting a HELOC, just to access your equity will cost you. And having other investments is good, but you also need to have some cash on hand. If you lose your job, or have a big, unexpected expense come along, you don't want to be selling those investments at a bad time, or scrambling to refi. You can use a money market account to get higher interest, while making the money less available, without locking it up, and still have it easily available, in an emergency.
You are doing well, looking at renting out your spare rooms. Look at setting up goals and a budget, like a percentage to invest in stock, saving to purchase another property, money for repairs, etc., as well as allocating money for food, utilities, etc. It is always a good idea to make a plan, and then see how close you stick to it. And nothing can be more motivating than seeing your goals accomplished.
And don't be afraid to use those 0% water softener and furniture loans to the max. Often there is a minimum payment that won't pay off the balance by the end of the 0% term. That is fine, because you could stuff that into a money market and earn several percent interest, and then, at the end of the 0%, pay off the balance using the money you've saved in the money market account. The name of the game is figuring out how to make your money work for you. Also remember that the 0% financing may not be "free", but may be paid for by higher prices on what you bought.
Fingerhut is a great example of people paying more for an item and paying higher interest rates, just because they can make payments, instead of paying off the full amount. And then you look and see that they are paying off dozens of items at +28% interest rates. A water softener and furniture are both items that taking a few days to look around won't cause any problems. Find other ways to reduce your expenses. That will give you more money to invest and earn returns.
While you are saving up, then you can learn and make plans for what direction you want to take in real estate.
Congrats on asking, and taking the steps to improve your situation. And while being debt free is a nice feeling, that can be expensive. Remember that your home interest is tax deductible, and by maxing out your loan on your house, that allows you to have extra money to invest elsewhere. Learning all the details can make you far more comfortable with how you use debt. Dave Ramsey's plans to pay off debt are great for people who haven't controlled their spending and don't have any other plans or budget in place. It gives them goals that they can accomplish and feel better at the end. Real estate has different goals and different paths to using money.
