Everyone's personal financial plan should include a strategy to pay down existing debt. The big question is which debt should be paid down first?
In many households the single largest amount of debt is in the form of a mortgage. But just because it's the biggest and most obvious debt doesn't necessarily mean it should be the first to get paid down with any extra cash at the end of the month. After all, mortgage debt is both low interest and tax deductible.
So, before you pay extra on your mortgage this month, make sure you've at least done the following three things first:
- Stashed away a sizable emergency fund in a safe and liquid investment, such as a high-yield online savings account
- Paid off any higher-interest debt like credit cards, student loans, or auto loans
- Taken full advantage of tax-deferred retirement options, especially if you have an employer-sponsored 401K that matches your contributions.
