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Can You Save Money While Paying Off Your Mortgage?

When Can You Save?

When you’re focused on paying off your mortgage or other debt, it’s all too easy to get tunnel vision and lose sight of other goals. But with a little extra planning, you could still work your way toward saving up your emergency fund, nest egg, down payment, or whatever else your next goal may be.

The first step in this is about figuring out where things stand for you at the moment. Different stages with your debt open you up to different opportunities, like you’ll see below.

You should save and make minimum debt payments

If you don’t have money set aside for emergencies and irregular expenses, you need to focus first on saving. I don’t mean “make your money work for you” saving, I mean “embrace that less-than-1% interest you get from your savings account” saving.

The last thing you should do when you are trying to pay off your debt is go into more debt when emergencies arise or expenses pop up. You will almost assuredly deal with some type of emergency between now and whenever your debt is paid off. You’ll blow out a tire, or your water heater will break, or a family emergency will require you to buy a last-minute plane ticket home. Be prepared.

Irregular expenses you will likely have this year include two six-month car insurance premiums, Christmas and birthday gifts, property taxes and basic car maintenance. They’re not monthly expenses, but that doesn’t mean you can’t adequately plan for them. Have money set aside for emergencies and expenses before you start making headway on your debt.

You should focus completely on debt payoff

If you have enough in your savings account for emergencies and irregular expenses, and you have high-interest debt, you should be focusing your efforts on aggressively paying down your debt before investing. Most credit cards have double-digit interest rates, and it will be difficult to find returns this high in the stock market.

When you are paying down your debt, focus on paying off the highest-interest debt first, especially if it’s credit card debt. The returns are hard to beat, and consumer debt is the worst!

Paying off debt offers you a guaranteed return for your money. And while it can be disheartening to throw money at the purchases of your past, becoming debt-free is liberating and reduces stress significantly. With each debt you pay off, your fixed monthly expenses decrease, freeing up more money for you to enjoy and invest in the future.
– via NerdWallet

Pay Bi-weekly Rather Than Monthly

Ready to get that debt – mortgage or otherwise – off your back? One great strategy to jumpstart that process is to start making bi-weekly payments. Why is this so powerful? Ready all about it below.

This is the easiest way to pay your mortgage down faster. Making bi-weekly mortgage payments rather than monthly payments will usually reduce the time it takes to pay off your mortgage by several years.

Here is how this trick works. Let’s say Mike and Cindy obtain a mortgage that has monthly payments of $1,000. Instead of paying $1,000 per month, Mike and Cindy could ask their bank to chop their mortgage payment in half and make the payments $500 every two weeks rather than $1,000 per month. This will be fine for the bank since they still get paid $1,000 every month, and as far as Mike and Cindy are concerned, paying $500 every two weeks is almost the same as paying $1,000 per month. However, even though this doesn’t feel any different to Mike and Cindy, it will shave 3.5 years off of their mortgage and save them more than $21,000 over the life of their mortgage (assuming that their interest rate stays the same).

Here is how Mike and Cindy will save so much money. If they made monthly payments, their bank would take $1,000 from their account twelve times a year (12 months x $1,000 monthly payments = $12,000 in annual mortgage payments). Now when they cut their monthly payment in half and get their bank to pull $500 out of their account every two weeks, they end up making what amounts to one extra monthly payment each year (26 bi-weekly payments x $500 every two weeks = $13,000 in annual mortgage payments). This happens because two months in every calendar year have a fifth week. If you’re paid bi-weekly, these are the two months each year where you get three paycheques instead of two.

Most people would never guess that making the equivalent of one extra mortgage payment each year could save them so much money. When people find out how much money they can save and how many years they can shave off their mortgage, most end up using this clever little idea. If you want to be really aggressive, you can pay weekly, but unless you’re super organized with your bank accounts and money, stick with bi-weekly payments to match your pay cheques.
– via

Are you saving while you pay off debt? Do you have enough of an emergency fund at the ready, or does it need some attention?

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