The national savings rate is up to a 15-year high and more Americans are getting serious about getting out of debt, rather than spending beyond their means. When staring down a pile of debt that includes mortgage, credit cards and school loans, the question becomes: Where to begin?

One way to pay down debt that appeals to many people is making an extra mortgage payment. The math seems almost irresistible when looking at the amount of money that can be saved over the life of a mortgage loan by making extra payments. For example, paying an extra $100 a month on a $250,000 mortgage at 6 percent saves over $50,000 and pays the loan off a few years early. That's a smart thing to do, right?

Not necessarily, says MSN financial analyst Liz Pulliam Weston. "Most people still have better things to do with their money, even in this economy, than to pay down a low-rate debt that's often tax-deductable to boot."

Weston points out that if someone is carrying credit card debt, say at 12 percent, every dollar put towards paying off that debt earns an instant 12 percent return. That is a great return considering the hit most retirement funds have taken over the last year and home values are shaky these days. Even a one-year certificate of deposit only averages around a 2 percent return.

A 2007 study found that an estimated 16 percent of American home owners pay extra on their mortgage. But that might not be the smartest use of funds. Financial planners all sing the same tune when it comes to paying off debt: tackle the debt with the highest interest rate first.

The debt with the highest interest rate is usually credit cards. Financial guru Dave Ramsey suggests trying a debt snowball. He instructs people who want to pay down their credit card debt to make a list of all credit card balances and then tackle the smallest balance first. Like the snowball that starts small and gains girth and speed as it rolls down hill, Ramsey touts the psychological benefits of watching the number of balances diminish along with the total dollar amount.

If credit card debt is not an issue, paying down the mortgage still may not be the smartest financial move. Unless retirement is right around the corner, using extra funds to invest in a retirement fund will give a greater return on that money. One study found that most people who make an extra mortgage payment each year would have gotten 11to 17 cents more on the dollar if they had invested in a 401k instead.

Should you pay down the mortgage or invest in the stock market? "Even with the recent turmoil, over the long term your money can earn better returns in the market compared with paying off low-rate debt. Based on historical returns, a mix of 60% stocks, 30% bonds and 10% cash would earn an average of more than 8% a year in most 20- to 30-year periods, according to market researcher Ibbotson Associates. You may doubt we'll ever return to the days of positive returns in the stock market, but we will," says Weston.

In these times of economic uncertainty, building an emergency savings plan is also a smarter thing to do than making that extra mortgage payment. Most financial planners suggest having enough in savings to cover at least three-months' expenses, and the smarter safety net is six months' of expenses in savings. While the paying-down-the-mortgage math seems sound, double check the numbers before writing that check.


Ki works as a realtor in the Austin real estate market. His site has a search of Austin homes for sale It also provides information and statistics on Austin real estate and Pflugerville real estate.