As a homeowner, you may often wonder how you can settle your debt earlier. Paying off your debt sooner rather than later, can save you a lot in terms of fees and interest rates, but which debt should you settle first? It is often a tough choice to decide between credit card debt or your mortgage payments, and which one of these two to settle first.
When you have extra cash on hand, it’s always a good idea to settle your debts first, especially those with higher interest rates. That’s why your Guelph mortgage broker is your one-stop solution for mortgage debt assistance.
It is not always easy to decide which debt you should settle first since your financial situation can differ from the next person. Your credit card has a maximum amount that you are allowed to borrow, and your monthly payments will be based on how much you currently owe. On the other hand, your mortgage payment is a fixed payment per month with a target payoff date.
Making the right financial decisions
When you look at your situation purely from a financial standpoint, you should always pay off your debt with the highest interest rate first. In most cases, this will be your credit card debt. In general, your mortgage interest rate will be lower than credit card payments, which is why most people are advised to settle their credit card debt as soon as possible.
However, if you are in a unique situation where your mortgage interest rates are higher than your credit card payments, you should really consider having your mortgage refinanced. The whole aim of paying the loan with the highest interest rates first is to avoid wasting money on interest rate payments.
Boosting your credit score
Another benefit of paying off your debt faster is improving your credit score. For this reason, it’s often a good idea to pay off your credit card debt first as your mortgage payments will have little effect on your credit record, should you pay extra every month. The reason for this is that unsecured credit card accounts are usually seen as a risky loan, thereby settling this will make your record look quite good.
Making the tough decision
As mentioned, in most cases, it’s better to pay off your credit card first, since it has a much higher interest rate than your mortgage payment. You can also help to increase your credit score, which is another added benefit.
There is an exception, especially if you are due to retire soon. In this case, you should rather focus on paying off your mortgage as soon as possible. This decision will also be based on your financial position, but it may be a much better option to get your mortgage out of the way.
If you are having trouble paying down all your debts, it’s best to speak to your Guelph mortgage broker for assistance. With Mortgage Guys, you can either refinance your mortgage or consider a consolidation loan to settle your outstanding debt as soon as possible.