When looking to pay down debt, homeowners often consider paying down their mortgage or shifting debt to home equity. Greg Karp considers both options here.

Should I Pay Off My Mortgage Early?

Your mortgage, especially if it’s at a favorable fixed rate, is the one debt you can relax about. It comes far down the priority list. You don’t need to pay it off early until you have your other financial goals achieved, especially retirement savings.

The reason is you’re probably paying a relatively low interest rate. If you can take a mortgage-interest deduction on your income taxes, your interest rate is effectively even lower.

I’m not saying never pay your mortgage off early. Just have retirement planning, kids’ college savings, and other essential financial goals well under way first.

Should I Use a Home Equity Loan to “Pay Off” My Credit Card Debt?

The good news is you can get a lower interest rate by using the stored value in your house to pay debt. But this debt swap can be dangerous for a couple of reasons.

First, you must realize you’re not “paying off” anything. You’re just moving your debt. If moving your debt makes you feel better, that might be a bad thing. That’s because you haven’t addressed the fundamental problem: spending more money than you could afford. To solve a debt problem long-term, you’ll have to dig into that question. Either your income is too low or your spending is too high.

Second, you’re moving unsecured debt to secured debt. In English, that means if you don’t pay your credit card bill, the bank can’t do much to you, except to bug you with phone calls and damage your credit score. If you don’t pay a home-equity loan, on the other hand, the bank can take your house. I think losing your house is a bigger deal.

So, if there’s any chance you won’t be able to pay, keep the debt on credit cards. If you discovered the reason you’re in debt and have permanently addressed the problem, shifting to a lower interest rate with a home equity loan will probably save money.