Quote:
Originally Posted by pilotbob
It's no wonder our country is in a recession. This get it on credit attitude is a problem.
I currently carry no credit card debt, have no car loans and am paying double house payments (doubling principle) amount each month. I can't wait for my mortgage burning... I hope it's before I am 50....
The only savings you should be doing while in debt (in my opinion) is to maximize 401K match. That is usually the best ROI you will every get.... unless you are a stock market guru.
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One of the main assumptions of a retirement that only takes 70% to 80% of your previous living costs is that you then no longer have a mortgage (or other debt; all college costs of you and kids are paid off). And in that assumption is that the mortgage only cost, at most, 30% of your previous net wages (in other words, was a low rate and no more than double your annual salary, 30 years ago when you took it out).
Now, people take out 30 (and 60, recently) year mortgages in their 60's and beyond. Many who were "caught" in the mortgage crisis took out interest only loans or negative amortization loans (the loan got bigger every month, as the payments were too small) with adjustable rates, counting on refinancing every year or two as the value of the house went up (my favorite was the 85 year old on fixed income that had one of each - then was upset when he couldn't afford the new payments and lost the house, blaming the bank). And loans for 50% to 100% of their take home pay. The examples of the outrageous loans are always in the news, perhaps because these are the kind of loans that are all in default (the super-risky loans that banks used to have a reputation of not issuing).
We paid off the house several years ago (sure, there isn't a tax writeoff, but it wasn't worth much - after you subtract out your standard deduction and then adjust to your tax rate, you might get a tiny bit off you taxes, but you still paid tens of thousands in interest that could have been in your pocket). It helped to build one we could afford (and it's no super-tiny model, just modest). Like you, cards are paid off and only used for business or personal purchases that can be paid off the next cycle (then the rewards points used as a discount for other things we would have done anyway).
The 401K match is the best ROI (and now you are buying at 1998 prices, which is a bargain); sadly many companies have cut those off this year. As a result, a Roth IRA is a much better idea for the first part of your money, if you are not getting a match. Only the amount you can save over that should go into the 401K. And since you aren't getting a match, it's actually best to pay off credit cards than make any retirement contribution, if you don't get a match.