Pay off mortgage faster or save cash?

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Dear Debt Adviser,
We’re in our late 70s, and we’re looking for help on how to handle a variety of debts. Here’s our financial situation: We have $15,500 in savings and receive $6,400 per month from retirement and Social Security. From that, we pay our mortgage and credit card bills. Altogether, we have about $5,500 in monthly expenses, which includes a payment of $2,000 per month toward the credit cards. We expect to pay off some of the cards in six months. Afterward, we’ll try to pay off the mortgage faster. Is there a better strategy for getting out of debt? Your advice would be greatly appreciated. We read your column in the newspaper every day.
— Ruth and John

Dear Ruth and John,
From what you have written, it sounds like you are on the right track. Keep paying down your credit card balances and, more importantly, don’t add debt to any cards on which you have a balance. You may not be able to count on keeping low interest rates in the future. Most credit cards have gone to variable interest rates, and you can expect rates to increase with the prime rate.

When you’re finished paying off the credit cards, I recommend that you build up your savings instead of making advance payments toward your mortgage. Since you’re in your late 70s, it is better to stockpile emergency cash. Try to save up enough to cover unexpected expenses such as a stolen car or damage to your home. You should have enough to pay for the deductibles on your homeowners and car insurance policies.

Another resource that you might consider is a reverse mortgage. This may be a good option if you have a decent amount of equity in your home. There are a number of ways you can access your equity in a reverse mortgage. I would recommend you check out a reverse mortgage line of credit. With a line of credit, you’ll have funds available if you need them. If you don’t need them, you don’t have to use them. Of course, if you use the line of credit, you will use some or all of the equity in the home, and that could diminish the overall value of your estate. Should you decide to consider a reverse mortgage line of credit or lump-sum payment, be sure to shop around for your loan and compare fees.

Lastly, I’m sure you worked hard during your working years to be in such a financially secure place. So, once you have beefed up your savings, put some of that money aside for having fun. Certainly, no one deserves it more than those who read my columns!

Good luck!

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