A very close friend and his wife have poured their time, resources and money into paying off their mortgage by age 40. They have not gone on a vacation for the past 10 years; they use public transport to get to work and rarely go to restaurants. They have achieved their big goal of paying off their mortgage 18 months early. This is a big deal for them and we are all very proud of their accomplishment. So, what is next? What do they do with the extra cash each month now that they do not have a mortgage?
A mortgage or credit card debt is tangible, measurable and extremely motivating to see your balance reduced month after month. Is it easy to channel that additional extra cash into savings or retirement? Not as easy as it sounds. Retirement goals or savings are far less concrete because there are so many uncertainties and it really difficult to measure your progress. If you increase your retirement savings by $1000, there is no guarantee that your retirement account will increase by $1000.
Is it worthwhile to deprive yourself and pay off debt off quickly?
Is it worthwhile to deprive yourself of the day to day pleasures of life in order to pay down debt very quickly? I think there is something to be said for balance. If you are doing a very hardcore debt reduction, then I don’t want to discourage you. However, slowing things down a bit might not be a bad idea. My friend made a good choice to pay down his debt because he took advantage of the low spending years when his kids were young and easily entertained with very little fuss.
Set financial goals after debt payoff
The key to aggressive debt reduction is to know what you will do with the extra cash after you have paid off your debts. You can use the extra cash to invest in real estate, max out your RRSP and TFSA contributions or save towards a small business. At least the extra cash will give you choices.
I don’t think that making extra payments on a mortgage is ever a bad idea unless you don’t have an emergency fund or you have other outstanding higher-interest debts.
If you feel good about putting your money into your mortgage at this time, then go for it. It will leave you in a great place with regards to your next move.
What do you think? Is it possible to pay off debts too fast?