#7Pay down other debt.

Figuring out how to get out of debt can be a challenge, but reducing high-interest-rate debt—even if it’s a tax-deductible mortgage, home equity line of credit, or student loan—can enhance your ability to save. And for long-term financial stability, we recommend that you start paying down your overall debt to a manageable level once you’ve taken care of your other savings priorities.

Would it make sense to refinance your mortgage?

Some things to consider:

  • If interest rates have fallen since you took out your mortgage, refinancing could lower monthly payments in the near term and save you money over time.
  • Be sure to factor in any transaction and closing costs that may be included in refinancing.
Reducing your mortgage rate may save you money in the long runAccumulated savings from refinancing a 30-year fixed-rate mortgage on a $250,000 home from 5% to 4%. After 3 years, the refinancing costs will be recovered.
Reducing your mortgage rate may save you money in the long runAccumulated savings from refinancing a 30-year fixed-rate mortgage on a $250,000 home from 5% to 4%. After 3 years, the refinancing costs will be recovered.

Have questions?

Does it really make sense to pay off my mortgage?

As is often the case, there is no absolute answer. Your personal financial situation will determine the best strategy for you. Here are some broad guidelines to take into consideration:

  • The real cost of your mortgage. Your mortgage interest cost is generally lower when you factor in tax deductibility. For example, if you’re in the 35% tax bracket and your mortgage interest is fully deductible, a 5.1% mortgage would actually cost around 3.3%.
  • Future investing opportunity vs. risk. If you think that investing could earn you more than 3.3% (or whatever your tax-adjusted mortgage rate is), paying off your mortgage may be the right decision. In today’s lackluster markets, where single-digit returns are considered very good, paying off your mortgage could be an excellent way to reduce investment risk and significantly reduce monthly expenses.
  • Your cash needs. Would paying off your mortgage leave you with less access to cash than you prefer? You might decide not to pay off a low-rate mortgage even if the numbers suggest that you would do better financially.
  • Your tax situation. If you have less than 10 years left on your mortgage, more of your payment is likely going toward principal than interest, so tax deductibility may not be a real concern.
  • Your peace of mind. There’s an emotional security in owning your own home. For some people, especially those who are near or in retirement, a strong desire to be debt-free overrides all other considerations.

Consider a compromise.

At the end of the day, you might find that a halfway solution feels best. By refinancing to a lower mortgage balance (and potentially getting a lower interest rate), you could reduce your monthly expenses while retaining some capital for investments.

What’s the smartest way to pay off student loans?

Along with a diploma, many students graduate with loan debts of $20,000 to $80,000 and more. Here’s how to start reducing what can be a substantial debt.

  • Gather all your loan documents and make a chart that includes the following for each loan: amount owed, interest rate, whether that rate is fixed or variable, term of the loan, minimum monthly payment, and the date you need to start repaying.
  • Pay off higher-interest loans first, but make sure to pay at least the minimum every month on every loan.
  • If all the monthly minimums add up to more than you can handle, there are options, including consolidation. For federal loans, the government offers a Direct Consolidation Loan plus several repayment alternatives designed to lower your payment and possibly even get your debt forgiven. Many private banks offer their own consolidation or alternate repayment programs.

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From Schwab Bank

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