The last couple years have proven to be tough times to be a homeowner. Home values around the country have seen a decline, and many homeowners are now feeling the squeeze from signing up for adjustable rate mortgages.  Many homeowners are having a hard time coming up with mortgage payments, while meeting minimum payments for cars and credit cards.  Something has to give, and all-too-often it is the house that falls behind.

The Squeaky Wheel Gets the Oil

There are too many stories out there about homeowners who kept their credit cards current as they fell behind on their homes, ultimately leading to foreclosure.  Credit card collectors are notorious for their obnoxious, high-pressure techniques, and unfortunately they are also often the most successful.  I used to work in a call center, and I’ve seen these collection practices up close and personal.  Believe me, it wasn’t any more fun for me being on the other end of the line, but some people seem to enjoy abusing others over the telephone.  I was raised on the idea that you catch more flies with honey than with vinegar, but in the collections world this just isn’t true.  The best way to collect money on a credit card is to scare the cardholder into thinking they will be sued, or to pester them to the point that they finally pay just to get you out of their lives.

Shelter and Transportation Before Visa and Mastercard

The problem with paying credit card companies when you are in a financial bind is that with only so much money to spread around, something else is going to suffer.  I’m not advocating you neglect to pay a just debt, however I am advocating that you sit down with the pile of money you have to work with and put life necessities at the top.

I’m a fan of the Dave Ramsey radio show. I don’t agree with 100% of what he advises, but he is right on when it comes to this subject.  When he fields calls from people who are being bullied by credit card collectors he advises them to list out their monthly expenses beginning with life-sustaining expenditures first:

• Housing
• Food
• Lights
• Transportation

Notice credit cards weren’t part of that lineup.  If you have money left over after paying those four basic categories, then by all means make your credit card minimum payments.  If you don’t have anything left over, do not stress out about what Bank of America might do to your FICO score, or worry that Discover Card is going to garnish your wages.  If you receive a call from a nasty credit card collector, explain in a calm manner that you have budgted your bills for the month and unfortunately you are not able to make a payment this time.  When they start to scream and yell and call you names, simply put the phone down on the table and go about your business.  If you get emotional and yell back at them, they win.  Getting you upset is their objective, so don’t let them win!

When your financial situation improves make plans to catch up on outstanding bills, again putting credit cards last.  House and car payments come first, and with anything left over you can begin to catch up on outstanding credit card debt.  The bottom line is to play by your rules, not the credit card collector’s.  After all, you are the one that has to suffer the consequences of missing a house payment, or getting your car repossessed.

One of the most controversial subjects around the family finances is the decision to payoff the mortgage early.  Some say you should keep the mortgage around as long as possible, citing low interest rates and tax deductions as opportunities you are giving up by paying it off early.  Others enjoy the freedom that comes from no mortgage payment, and the huge amounts of disposable, monthly cash that comes along with being mortgage-debt free.

Life Without a Mortgage

Mortgages are sort of a necessary evil nowadays, mostly because real estate is too expensive for the average person to pay for a house with cash, but in some cases because people buy more home than they can really afford.  In many cases people could nearly pay for a home in cash, or at least put 50% down, if they would settle for a smaller place.  Of course, some in extreme real estate markets would argue even this plan is impossible with modest homes starting in the $400,000 range.  I would agree.

Still, it is hard not to enjoy the idea of not owing anyone any money.  Imagine the freedom that comes with being debt free, including the house and all credit cards.  Let’s say for example that you are in your late 40’s, and your kid(s) are wrapping up college.  Instead of carrying out that thirty-year mortgage to the full term you worked to pay it off in twenty years.  Now you own a $200,000 paid-for home, and have no other debts.

At this stage in your life, could you seriously consider an early retirement?  Would a career change, or relocation now seem plausible?  Of course!  With no payments you simply have to earn enough to cover your basic needs such as food, lights, insurance, etc.  And assuming you had adequate savings there is nothing stopping you from going after the career you’ve always wanted, but could never afford.

But Couldn’t I Earn More in the Markets?

Maybe.  At the time of this writing the markets are doing so hot, so passing on extra mortgage payments to invest in a flat (or declining) market doesn’t yield the kind of returns you might expect in a bull market.  The flip side to that is that when markets are in a decline it is a good time to stock up on beaten up companies with solid fundamentals, so setting aside some money to invest does makes sense.

I try to look at things through a short-term-pain, long-term-gain filter.  I may have to miss out on a few hot investments now, but down the road I’ll be able to make huge contributions to retirement funds and taxable savings vehicles if I have no debt payments.  I’ll also be free to make more decisions about how to spend the remainder of my life energy, rather than continuing to work in a passionless career just to make a house payment.

Are you planning to payoff your mortgage early?  Why or why not?