Why I'm Not Paying Even $1 Extra to Pay Off My Debt

There's a very good reason why debt payoff isn't a priority for me. 

Many financial experts advise trying to pay off your debt as quickly as possible. Usually, this involves making extra payments each month to reduce your principal balance more quickly. And, sometimes this can be a good idea. If you have high interest debt such as credit card debt, then paying off your full balance ASAP can help you save a lot of money on interest.

In my case, though, I'm not devoting even $1 extra to repaying my debt. Here's why. 

Paying off my debt early isn't the right financial goal for me

The reason I’m not making any effort to pay off my debt early is because of the type of debt that I am currently paying back. Specifically, I do not have any outstanding loans except for a mortgage loan. And I don't plan to borrow any money for other purchases either, as I pay off my credit card bills each month and save up to pay cash for my cars. 

My mortgage loan has a very reasonable interest rate of 3.25% and my monthly payment on my home loan is very affordable. Since my rate is fixed, it will never change and my payment amount will never go up.  

I have many years left to pay on this loan, and I do not see any reason to try to cut off time by making extra payments since my ROI would simply be the interest I save. I can invest in relatively safe investments such as an S&P 500 index fund and stand a good chance of earning at least double the returns by doing so, so I don't want to waste even $1 trying to pay down my mortgage ahead of schedule. 

I also know that I can get tax breaks for retirement investing by devoting my money to that goal instead of early payoff. And because I itemize when I file my taxes, I get to deduct my mortgage interest. In other words, the government is subsidizing my home loan so my carrying cost is even less.

Finally, because I have a fixed-rate loan, I know my mortgage is essentially getting cheaper over time due to inflation. The amount I pay each month will buy me far less in 10 years than it does today. 

For all of these reasons, I have better things to do with my spare dollars than paying anything extra on my remaining mortgage loan balance. 

Should you try to repay your debt ahead of schedule? 

Early debt payoff doesn't make sense for me, but that doesn't mean it isn't a good financial goal for some people.

The big question is, what would provide you with the best ROI. If you have low interest debt and can earn a lot more with your money by investing than by saving interest with early payoff, then you should just pay the minimums on your debt. But if you are being charged high financing charges and you can't count on safe investments to earn you more than you're paying on your debt, then focusing on debt payoff is likely the right choice for you.