I’ve been asked a few questions since starting this blog that I’d like to take the time to answer.
The first question I received was, “Why shouldn’t I start with the highest interest rate when paying off my debt? I’m having a hard time understanding why you’d want to start with the lowest balance, the math doesn’t work.”
Math isn’t the problem! Behavior is! If the math worked, people wouldn’t be in debt. Behavior got them into this mess and a change in their behavior is what is needed to get them out. To change that behavior, you need an early success. It gives you confidence that you can fix the mess. Also, an early win can be built upon; it gives you traction. So I suggest listing your debts smallest to largest and paying them off in that order.
The next question asked was, “Why would I want to pay off my mortgage? I’d lose the tax write off, wouldn’t I?”
Yes, you would lose that write off! However, are you willing to trade $10,000 for $2,800? That is, essentially, what you doing. The numbers may be a little different depending on your tax bracket but the premise is the same. For round number purposes, if you earned $100,000, with $10,000 in mortgage interest, you would reduce your taxable income and instead be paying taxes on $90,000. So you’re paying less in taxes!! That’s awesome! Right? WRONG!
If you didn’t pay the $10,000 in mortgage interest you would be paying taxes on $100,000. If you earned $100,000 you’re either in the 25% or 28% tax bracket, depending on your marital status. If you had to pay 28% on that $10,000, you’d pay an extra $2,800 in taxes.
I understand that this is a simplified scenario but the principle is the same, you’re trading $10,000 for $2,800! The math doesn’t work. Keeping your mortgage for the tax deduction doesn’t make mathematical sense.
The last question I was asked was regarding my opinion of cashcrate.com.
I think if you have the patience, and a spare email address that you don’t mind getting spammed, then cashcrate.com might be a good place for you to make some extra cash. I suggest reading www.cashcratesecrets.com if you’re interested in cashcrate.com and the money you can earn.
Do you have personal finance questions you’d like answered? Feel free to comment below or to contact me at email@example.com.