Should I pay off my mortgage or pay off my credit card debt first?

Our minimum monthly mortgage payment is $1,539.64. We owe $204,020 on a mortgage with a rate of 3.8750%. Our total credit card debt is $34,000 with an average interest rate of 12%. When we have extra funds each month, should we use them towards the paying off the principal on our mortgage or towards paying off our credit cards?

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5 days ago
67% of people found this answer helpful

The important principle here is debt cost vs. opportunity cost, which is what the same funds can earn elsewhere (such as an investment). Even though your principal amount owed is higher on your mortgage, you are paying a higher opportunity cost by paying that down first when the same funds could be invested in a moderately allocated ETF portfolio with a historic return of 6% or greater. I would pay off the credit card debt first. If that 3.875% is not fixed, I would get that change right away (even if the rate is slightly higher) because rates are expected to rise for the next several years. It does no good to pay off the mortgage early unless you are not earning a higher return from an investment portfolio.

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