Paying Debts Early
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Assuming that you have successfully eliminated your bad debts and are now looking to manage your debts wisely and properly, it is a good idea to look at how to manage large debts that many people will incur over the course of their lifetime. While many people are familiar with the base concepts, most of them are unaware or have not really paid attention to all of the small details that are necessary in order to manage the larger debts and thus, allow them to establish further good debt in order to expand their financial portfolio.
Paying Debts Early
“I heard this guy talking, and he really did make a lot of sense. He said that since I got such a great deal on my mortgage, and because I got paid every two weeks, I could make a couple of month’s additional payments every year and pay off my mortgage a lot sooner.” This was actually part of a real conversation that took place. The person in question actually listened to what they had been told and made two additional monthly payments every year on their mortgage.
Unfortunately, a little bit of knowledge can be every bit as dangerous and in some instances, even more dangerous than no knowledge at all. Had this individual taken the time to investigate further and gather more knowledge rather than just listening to what someone else said and acting on it in blind faith, they could have actually saved some money.
“What?” you ask? They are paying their mortgage off early right? So they must surely be saving money right? Oh, so sorry. If you really believe this, head back to the corner and start over again from the beginning. They were only making two additional monthly payments every year. They were not in fact, paying off the actual mortgage any faster than it would have been paid off normally.
They were paying it off faster in time, yes. So what did this person actually get for their additional investment every year? Over the course of a thirty year mortgage they will have paid off the mortgage in about twenty five years. So they did in fact pay it off quicker right? Speaking strictly from the point of linear time, they did in fact save five years. So why didn’t they save any money?
