Keeping Good Debt Can Net You More Money

NEW YORK (MainStreet) — Paying off your mortgage quickly means you could lose money for your nest egg in the future.

Since inflation erodes the value of your existing finances, working to pay off only the entire mortgage may wind up costing consumers in the end. If a consumer has a $1,600 a month mortgage, the money will have about a third of its purchasing power in 30 years.

"You may be losing money in the long run," he said.

Instead, consumers should determine what types of debt is considered to be "good debt," which is debt that is at a low, fixed rate and preferably tax deductible, Chadwick said.

"If you can make monthly payments and still have enough money left over to save for retirement needs, it may not be in your best interest to pay that debt off too quickly," he said. "It does not need to be tax deductible to be good debt, but we consider that the icing on the cake."

Determining which debt needs to be paid down first can be determined by whether or not a consumer is "earning more on his or her money than he or she is paying on the debt," Chadwick said.

The underlying asset should be taken into account since the debt accrued for some cars and homes winds up being a loss if the asset is a "money pit," he said.

Also See: Debt Settlement Plans May Put You Deeper in Debt

Deciding when to pay off a mortgage can be tricky, but Chadwick advises consumers to avoid paying off a mortgage if the rate is low.

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