| The national savings rate is up to a 15-year high and | | | | The debt with the highest interest rate is usually |
| more Americans are getting serious about getting out | | | | credit cards. Financial guru Dave Ramsey suggests |
| of debt, rather than spending beyond their means. | | | | trying a debt snowball. He instructs people who want |
| When staring down a pile of debt that includes | | | | to pay down their credit card debt to make a list of |
| mortgage, credit cards and school loans, the question | | | | all credit card balances and then tackle the smallest |
| becomes: Where to begin? | | | | balance first. Like the snowball that starts small and |
| One way to pay down debt that appeals to many | | | | gains girth and speed as it rolls down hill, Ramsey |
| people is making an extra mortgage payment. The | | | | touts the psychological benefits of watching the |
| math seems almost irresistible when looking at the | | | | number of balances diminish along with the total dollar |
| amount of money that can be saved over the life of | | | | amount. |
| a mortgage loan by making extra payments. For | | | | If credit card debt is not an issue, paying down the |
| example, paying an extra $100 a month on a | | | | mortgage still may not be the smartest financial |
| $250,000 mortgage at 6 percent saves over $50,000 | | | | move. Unless retirement is right around the corner, |
| and pays the loan off a few years early. That's a | | | | using extra funds to invest in a retirement fund will |
| smart thing to do, right? | | | | give a greater return on that money. One study |
| Not necessarily, says MSN financial analyst Liz Pulliam | | | | found that most people who make an extra |
| Weston. "Most people still have better things to do | | | | mortgage payment each year would have gotten |
| with their money, even in this economy, than to pay | | | | 11to 17 cents more on the dollar if they had invested |
| down a low-rate debt that's often tax-deductable to | | | | in a 401k instead. |
| boot." | | | | Should you pay down the mortgage or invest in the |
| Weston points out that if someone is carrying credit | | | | stock market? Although its hard to see now long |
| card debt, say at 12 percent, every dollar put | | | | term returns in the stock market probably will |
| towards paying off that debt earns an instant 12 | | | | outpace the money saved by paying down mortgage |
| percent return. That is a great return considering the | | | | debt looking over a time horizon of 20 to 30 years. |
| hit most retirement funds have taken over the last | | | | In these times of economic uncertainty, building an |
| year and home values are shaky these days. Even a | | | | emergency savings plan is also a smarter thing to do |
| one-year certificate of deposit only averages around | | | | than making that extra mortgage payment. Most |
| a 2 percent return. | | | | financial planners suggest having enough in savings to |
| A 2007 study found that an estimated 16 percent of | | | | cover at least three-months' expenses, and the |
| American home owners pay extra on their mortgage. | | | | smarter safety net is six months' of expenses in |
| But that might not be the smartest use of funds. | | | | savings. While the paying-down-the-mortgage math |
| Financial planners all sing the same tune when it | | | | seems sound, double check the numbers before |
| comes to paying off debt: tackle the debt with the | | | | writing that check. |
| highest interest rate first. | | | | |