Having a mortgage to pay off each month can be a burden. It can seem like your payments will never end. It’s usually a person’s biggest expense each month, too. Wouldn’t it be nice to have your house paid off, free and clear? Should you start putting all of your savings towards paying off your mortgage sooner?
The answer, as usual, is that it depends. It depends on what camp you’re in. There’s the camp of people who believe that you should live debt free, and there’s the camp of people who believe leverage is a powerful tool that can increase your return on investment. The answer to this question will entirely depend on which camp you fall into.
Which camp are you in?
The people who believe in a debt-free lifestyle are all about simplicity. Owing money can cause a lot of stress and anxiety. Being free of debt provides a lot of freedom. You aren’t as worried about losing your job or not being able to work because you don’t have a bunch of expenses each month.
Then, there are the people who believe leverage can be a huge advantage. These people know the difference between good debt and bad debt. They use debt to purchase assets that provide positive income and increase their returns. Leverage allows them to purchase assets they otherwise couldn’t afford.
These two different camps have their pros and cons. For example, having no debt is a major accomplishment. It allows you to live freely and shows that you have discipline and understand your finances. It also requires being frugal and cutting back on a lot of things. You have to delay a lot of the luxuries in life in order to meet this goal. And, even if you are very frugal with your money, it can still take years (or even decades) to become debt free. This is very difficult for a lot of people and might not be worth it to them.
On the other side, you have the people who use leverage to their advantage. This allows them to increase their returns and acquire more assets. You don’t have to wait until you have $100k saved up in order to purchase that investment property. You can put a smaller down payment on it and use the rest of your funds to invest in something else.
Using leverage can be risky, though. Many people get into trouble by having too much debt that they can’t afford. If they lose their job or have some other financial hardship, they’re going to be in a very difficult situation. This can be extremely stressful and financially devastating. Also, people often get into debt for liabilities instead of assets. They want the brand new car, so they convince themselves that they can afford the monthly payment. This limits their savings and prevents them from investing in assets that bring in more income.
It’s important to decide which path is right for you. If you aren’t worried about getting the highest return on your investment, maybe you should consider paying off your mortgage. Or, if you are careful with your finances and know how much debt you can take on safely, you might consider using leverage to your benefit. In the end, there’s no right or wrong answer to this question. Everyone is different, and you must decide what’s best for you and your situation.