The most significant debt you will probably have in life will be your house. But, so many people don’t treat this as debt as much as they treat this as an investment. It’s still debt. And, the best thing to do with debt is to get rid of it as fast as possible. That’s why this post will give you three good ways to help you pay off your house quickly and rid yourself of that monstrous debt.
Don’t worry; I fell into that house investment mindset trap myself for years. If you listen to many ‘financial experts’, they will tell you a house is like a savings account. You make the payments; then when it’s paid off, you have a big chunk of equity just sitting there. I’m steering away from that kind of ‘house investment’ mindset. With all the financial and time burden aspects that go along with home ownership, it might not be as much of an investment as it seems.
But that will be the topic for another post. For this post, we are going to concentrate on getting that considerable debt paid off as fast as possible.
Pay Off House Debt; Make additional payments to your principal
Making payments to the principal is one of the most fundamental things you can do. People have advised this for years, so you’ve probably heard this one before. The basic idea is to make payments on the money you owe on the house rather than make additional payments on the interest. Every month you make a payment on your house there will be the principal amount than the interest percentage on the principal.
Since interest is a percentage of what you owe on the principal, the further you can take that principle amount down, the less interest you will pay every month. That is why, if you make the same house payment every month, the longer you pay on that loan, the more goes toward the principal every month, and the less goes toward the interest. That is why it is so advisable to make principal payments as often as you can.
There are some things to watch out for. It’s happened to me, and I’ve heard stories of it happening to other people. Banks lose money when you pay on principle. They will try every way possible to make sure you make your payment to include the interest. Many times, when you go into the bank to make that additional payment, they will schedule it as an extra payment so you will be paid up a month or two in advance. These payments will include the interest.
You will need to be very direct with them when you walk in to make a payment to ensure you are making a ‘principal only’ payment. Another thing I have heard of but haven’t experienced myself, are loans designed with penalties for early payment or payment on principle. These are little loopholes designed into loans to make sure the bank is still getting its money.
When you initially get a loan, make sure there are none of these penalties written in to make it more difficult for you to make a payment on principle.
Pay Off House Debt; Make the additional payments as soon as you get the money
It seems as soon as we get a little money in our hands, we like to spend it on other things. We might put it in a bank account and call it savings, but if you already have a nest egg built, take that money right to the bank and make a principal payment on your house. Don’t let that money sit around.
The longer that money sits, the more uses you will find for that money rather than paying off that debt. Don’t let extra money sit there. Your mind will start working on all the cool things to spend it on. I have several different subaccounts set up at my bank. The best thing would be, is to set up a subaccount just for the principal payment on your house. As you accumulate money throughout the month stick it into this subaccount. Then, once or twice a month, take that money and make a principal payment.
If you have any money coming in regularly from some investments or something else, consistently funnel that money directly into that account. Maybe you have a part-time job to earn some extra cash. If you can budget your lifestyle and do without that money, have your part-time job directly deposit that money into that separate account every month. This way you never have to make that decision on what to do with the money.
Living without that extra money may seem painful at first, but as time wears on, and you see that debt wear away, you will be glad you did it.
Pay Off House Debt; Create a side hustle directly to pay off the house
I talk a lot about earning side money and having multiple streams of income. I think it’s just something everyone needs to do. One way I thought of creating extra money to pay off a house is to create a separate side hustle where all the money from that endeavor goes directly to pay off that house. I think one of the most challenging things with money is to have the right mindset on what to spend it on.
I think that is why budgeting is so hard for so many people. You get one lump paycheck and have to divvy it up into several different pieces to make sure everything gets paid every month. The time and effort spent on it almost seem like a waste of time, even though it is But, if you created a side hustle where all the money generated through that side hustle went directly toward the house payoff, you would never even have to spend any time managing where the money would go. Get that burden lifted off your plate of things to do. You’d have more time to spend creating the money, and your house would get a ton of extra payments on principle every month. This is huge for obtaining financial freedom.
The cool thing about the internet is that the money flows automatically. Let’s say you set up a little affiliate marketing system with Amazon. You can have Amazon directly deposit the earnings into that subaccount we set up at our bank. You would never even see that money until it was time to make the payment on principle. And that could also be done wirelessly over the internet by EFT (Electronic Fund Transfer). You possibly sit on your couch, on a laptop, and make a principal payment on your house without even talking to someone at the bank.
The possibilities with this side hustle thing could be endless. The whole goal here is to keep paying that principal down to drop the interest down. We lose money when we pay interest. Keep coming up with new ways to pay down that principle, and you will pay off that house debt in no time. Make it easy on yourself to keep making those payments. The easier it is for you and the less you get to touch that extra money, the more likely that money will find its way to pay off that house.
Be safe,
Kevin