I’ve been paying my bills wrong my entire life, according to most experts. But I don’t regret it. I do not pay the bills with the highest interest rates first to save more money. I tend to use my gut, paying off the bills first that cause me the most stress. According to a recent article by MarketWatch, a recent TransUnion study showed Americans have changed the order in which they pay their major bills such mortgage, car loans and credit cards. Most people now pay their mortgages before their credit cards, which experts say is a good thing. However, they don’t like the fact that people still tend to put their car loan ahead of mortgages. Although I don’t have any problem paying my bills, I do put my extra money toward the car loan first and the mortgage second. But that’s only after I completely pay off the credit-card each month.
Paying off zero-interest loans
Some experts argue a person should pay off loans with the highest interest rates first. Author Dave Ramsey is one of the few I’ve heard give contrarian advice to use the “snowball method,” which involves paying off the smallest balances even if the interest rate is low. The idea is to get motivated by seeing progress being made toward the goal of becoming debt free. I am recently in the midst of paying off a zero-interest medical “loan” or payment plan. I am making double payments even though I would pay no interest on the bill.
Putting my feelings first
It’s worth it to me to pay some interest on bills if I’m able to funnel my extra money toward a bill or debt that is causing me more stress. I don’t know why some bills cause me more stress than others. I can speculate that my car loan causes me more stress because I worry about what life would be like without a car if it was repossessed. It just feels safer to own it outright. Even though I have a 2.75 percent interest rate on my mortgage, I try to pay it down because of the comfort it gives me.
Speculating on the statistics
As far as the TransUnion study, I think there is a reason why a lot of people didn’t used to put their mortgage first. In my neighborhood, there are dozens of pre-foreclosures and foreclosures even though it’s been years since real estate hit bottom. I’ve talked to neighbors who said they wanted to move. It was easier for them to stop paying the mortgage than to wait for months or years for a desirable offer from a buyer. According to TransUnion, the 30-day delinquency rate for mortgages was 1.71 percent and 0.87 percent for car loans at the end of 2013. In 2012, the rate was 2.42 percent for mortgages and 1.81 percent for credit cards. I think as more people decide they want to keep their homes, they will make paying their mortgages a top priority.
I might not make the most logical decisions when it comes to my personal finances, but I make the moves that give me peace of mind. If I was suddenly faced with unemployment, I’d probably feel so panicked that I would keep paying my bills the way I’ve always done it. Ultimately, that just tells me I need a bigger emergency savings cushion.
More from this contributor:
Why Rich People Feel Hated, But I Don’t
I Pay Myself Last
Escaping a Lifetime of Debt