Using Side Hustles to Paydown My Mortgage

I hope at this point it is not a secret that Lanny and I are doing whatever it takes and side-hustling our tail off to earn every extra dollar we can.  In fact, I am earning some Swagbucks as I am writing this article as I have a video running in the background. We always say that every dollar counts and every dollar makes a difference in our pursuit of financial freedom.  I’ve been thinking long and hard about that phrase recently, especially as I spend hours staring at a computer watching spreadsheets open at work or I walk to the water cooler for a needed break. After a conversation with Lanny at the water coolers one of those days, something he said caused a light bulb to suddenly turn on and I cannot wait to starting using my side hustle income in a different manner, to paydown my mortgage.

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Last year, I called myself out and made a pledge to starting paying off my debt.  After a new car, new house, and our outstanding obligations, my wife and I saw a lot of dollars leaving our bank account on a monthly basis to pay “interest” to our friendly “bank.”   Quite frankly, it is not a lot of fun and I could think of plenty of better uses of our capital. Invest in? Donate to a charity? You get the point. I’m getting tired of paying down debt!  

Each month, Lanny and I publish a Side Hustle Report where we document our side hustling adventures and tally the amount of extra income we earned in the previous month.   I wear the amount of extra income with a sense of pride and I love the fact that we are both able to squeeze a few extra dollars from websites on a monthly basis. Last month, I was able to earn $36.62 in extra income while working a ton of hours at work.  It may not seem like a lot, but it was a blast earning every one of those pennies.

What was this awesome conversation I had with Lanny at the water cooler?  We were talking about our favorite question…should we paydown our mortgages or invest?  Ah, the question we have been asking ourselves and all of you for years on this website. I’ve been wanting to formalize a plan to pay down my mortgage early.  But what is the right amount in a rising interest rate environment with a fixed rate mortgage at 3.89%?  That question has caused me a lot of grief over the past few months as I work to finalize a plan and get it into motion.   

My monthly mortgage payment is $1,041 and I’ve come to the conclusion that I want to make at least one extra mortgage payment each year.  So instead of simply transferring the money from my savings account and using the funds to pay down the mortgage, why not use my monthly side hustle money to pay down my mortgage?  When Lanny said that phrase to me, that was when the light switch finally turned on. That’s the perfect use of all this extra capital that I am earning each month. From this point forward, I am committing to use EVERY DOLLAR I earn from all my side hustles to pay down my mortgage.  Each month, I am going to make the additional payment based on the results posted in my article!

The results are already starting to show.  Using this theory through the beginning of March, I had made $223 in extra mortgage payments based on the results of side hustles.  In my amortization spreadsheet, this has shaved off ~.7 months of payments on my 360 month mortgage, saving me ~$730 in future payments to the bank down the road.   In fact, if I finish the year applying at least 1 extra payment on my mortgage, I would shave off at least 3 future months of mortgage payments.   That is a nice bang for the buck using extra capital that I earned on the side.

There are two things that I like about this approach.  First, it is motivating as heck and encourages me to continue to push myself to earn every extra dollar that I can.  Each penny will reduce my outstanding debt obligation and bring me that much closer to financial freedom and eliminating a HUGE monthly cash outflow.  Why wouldn’t I spend all of my free time trying to earn as much extra cash as I can? Second, this allows me to continue to use my regular capital to pursue my investing goals, such as maximizing our 401k and growing my dividend income as much as possible without have to re-allocate regular earnings to pay down my debt.   

The stakes have been raised and I’m really looking forward to this new challenge and motivation.  What are your thoughts about this plan? Do you do something similar? If not, what is your mortgage paydown plan?  How do you use your side hustle income?

Bert

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27 thoughts on “Using Side Hustles to Paydown My Mortgage

    • Thank you Chris! That’s a great point about habits and I 100% agree. It is all about developing the right habits and surrounding yourself by the right people that motivate and encourage you. I was fortunate enough to do that with my fellow Diplomat! This should be a fun game to me and I look forward to doing what I can to pay this sucker off early.

      Bert

  1. My wife and I have lived mortgage free for many years. Just like you, we made it a priority when we were younger. It’s great not owning anyone money. I like your thought process, it’s self fulfilling and self motivating plan. Keep it up. Tom

  2. Right now a lot of our side hustle money goes into a corporate account. We’re looking at buying a house though, so might take it from there to pay down the house faster, not sure. What’s better, to pay down the house faster or invest the money and use the dividends to pay down?

    • Mr SLM,

      Fair point Mr SLM. If I wanted to make one extra mortgage payment a year ($1,041) using dividends, I would need to invest $34,700 at 3% (not considering taxes paid on dividends). You do raise an interesting point though and one that I had not considered, so thanks for giving me something to think about while stuck in traffic tomorrow!

      Bert

      • Yeah what I’m wondering is which comes out ahead in the long term, if you pay down your mortgage or use that money to invest instead. What comes out better, in terms of absolute value.

        Disregarding the psychological aspect of paying down debt, and simplifying it for the sake of modeling it in my head easily, if you had $100k of mortgage at 3% 25 years, and you had the option to pay that down entirely now or take that entire amount of invest it in something with a typical market return and pay the mortgage in the meantime. Alright turns out I can’t really model that in my head easily, even with simplifications, will have to write the code. Might be interesting to see the numbers.

        • Let us know as soon as the code is ready to roll. But I have a feeling I know what the answer is, especially when you consider in the average growth of the market and compounding interest. But it is hard to quantify piece of mind!

          Bert

  3. Bert,
    That is a solid idea. Right now I ’round up’ to the next hundred $100 on my mortgage – so a little extra goes towards the principal each month. As of right now, my wife is taking about a year off to spend time with the baby, so I am not using my side income for investment or debt. Rather it is buffering that savings until she returns to work this fall. After she goes back I will definitely be upping debt payments and investments though!
    – Gremlin

    • Gremlin,

      Thank you sir. I dig the rounding up idea and that small amount of extra payment will shave a lot of months off of the back end of your mortgage. And I’m sure you BARELY miss those few extra dollars in your account. I’m sure your wife is loving her time spent at home with the little one! That side hustle income is going to a great place now, even if it isn’t used to pay down debt or invest.

      Bert

  4. Awesome conclusion! I’m all in favor of doing both. Pay down your mortgage and continue to invest. I have always been a huge advocate of making a full extra mortgage payment per year. This is the exact same thing as doing a house payment bi weekly and it makes more sense to me. I simply take my total principal and interest payment, divide by twelve and add that extra onto my monthly payments. You’d be surprised how much of a dent those extra payments make on that loan!
    I’m looking forward to seeing it this works out for you! I also have a big goal of paying off my house sooner which should be realized in the next 2 years. I’ll be sure to post an article on that one!

    • Thanks Diligent. I love your plan and you are going to crush that debt. I love running my amortization table and messing around with the extra payment scenarios. It blows my mind how a few small payments on the front end makes such a large difference on the back end. Of course I know it, but it is always cool to see the dollar impact. I can’t wait to see your article!

      Bert

  5. Great decision I like stocks as much as anyone, but getting a guaranteed return of 3.89% by paying towards the mortgage seems pretty compelling right now. My stock portfolio is only yielding about 2.6% and a safe fixed-income investment like VFISX is still yielding under 2%. In my view, paying off one’s mortgage is the key to early retirement.

    • Brian,

      I like your last sentence about how being debt free and limiting your cash outflows is key to early retirement. It isn’t an easy call, that’s for sure, especially as so many great dividend stocks are falling. But if someone wants the piece of mind that comes with being debt free, how could you really blame them?

      Bert

  6. I think that’s an excellent plan. I really like the fact that you’re devoting the side hustles to pay down your mortgage but using your regular income for other things. Like you, I’ve struggled for some time with the question of whether I should pay down my mortgage more or invest. I had the same question with my student loans and decided to pay off my student loan by the end of the year. However, the mortgage is another beast all together. It’s going to take a lot longer for me to pay off my mortgage, which is currently on a 30 year fixed scheduled at 3.5% interest.

    Part of the difficulty with my mortgage is that I’m not sure I’m going to keep the house for 30 years. It’s now a rental and I plan to buy another house within the next 18 months. But if you know you were going to keep your house then paying off the mortgage is a good thing. To some extent, even if you sold the house before you finished paying down the mortgage, it’s not really like you use the extra money you’ve been paying because that’s part of your equity.

    But, so I don’t make this a long comment, it’s good you’ve found use for the side hustles coming in, and that is just one more example of the benefit of having multiple sources of income.

    • Dividend Portfolio,

      I agree, student loans and mortgages are different animals given their interest rates and the nature of the debt. You do have an interesting/different scenario on your hands. Sure, my wife and I are not going anywhere for a long time. But in your case, yeah, I can see where the dilemma is. Especially if you are going to use the house as a rental or eventually sell it down the road. Hmm, that is not an easy choice. The good news is that if you turn it into a rental, you’ll be able to deploy that second source of income to paying down your debt or another great use of capital!

      Thanks for the great comment!
      Bert

    • DP,
      I’ve got a friend that has several properties, almost all with mortgages on them, but he is renting all out covering the mortgage and then some. His plan is say Property A’s Mortgage is 800, but is renting for 1200. Put the extra 400 into a holding container incase anything goes bad and needs fixing until ~ 5000, then after that always put the full rental towards the principle to pay it off early. He has fully paid off 1 / 4 properties, and looking at a 5th to get into.

      So – what I’m getting at, why not keep the property as a rental, even if you don’t plan to go back to it as a larger version of a side hustle? You can take the extra income and put it towards the principle, or invest, or just whatever you need it to be?

      Just some thoughts. Best of luck with everything!
      -Alex

  7. I’ve seen a lot of financial bloggers make a ton of money by SEO’ing their blog (basically just writing really long, 1000+word posts and then getting backlinks). People like Michelle from MakingSenseofCents and The College Investor.

    Have you thought about doing that?

    • Troy,

      We definitely have and are always thinking about the best way to monetize the blog/website without sacrificing the reader quality. I can promise you we will not leave a stone un-turned!

      Bert

  8. It is an interesting question to ask, should extra money go towards investing or towards debt. For ~230 dollars to cover ~750 dollars in 15 or 30 years, that’s not a bad coverage for it’s influence to triple in this amount of time. What would it do with reasonable investing? My guess is, and it of course depends on what you put it towards (anything can happen in 15 – 30 years), that it will be worth less (including gained dividends) than 750 in 15 / 30 years. That’s my take on it, but I’d love to hear the conclusion to ya’lls conversation! I’m a big fan of diversification, not just with investments but all things in life. So instead of going all in on investments, spread it between investments and paying off debts (currently none but looking to buy a house later this year).

    Best of luck and I might have to try out swagbucks one of these days!

    • Alex,

      It is a very interesting question indeed and what makes it more difficult is that both scenarios are positive steps to improving your personal finance. I don’t think there is a right answer here either and it is okay to take a hybrid/blended approach to paying down debt/investing. I sadly don’t think there is going to be a conclusion anytime soon, but I appreciate your feedback on the topic.

      Let us know what you think of Swagbucks – Let us know if you need a referral code 🙂

      Bert

  9. I think sometimes our quantitative brains want to take the “personal” out of personal finance. Even though you have a low interest rate I think it’s a great use of capital and I like your method.
    My wife and I are throwing a lot at our mortgage, we pay about 150% of our base rate because we want it gone in less than 15 years.
    But we’re also not sacrificing investing. Thanks to high incomes and a high savings rate we’re able to max out all tax advantaged accounts and still add to a brokerage.
    The thing I like is once the mortgage is gone that frees up so much cash flow and makes it much easier to meet basic needs.
    Great article!

  10. I think this is a great example of using psychology to benefit yourself financially. You could just put all of your savings (side hustle money included) into one fund and then decide how much to pay down your mortgage. But that mixes up your income into one big pot. By keeping your side income only for paying down your mortgage, it gives you a clear goal. Plus, each dollar you earn on the side is worth more than one dollar (as it saves you interest), which motivates you further. Great job!

    • Thanks Andrew! I’ve neer thought about the psychology behind it, but I couldn’t agree more. What really motivates me is seeing how many mortgage payments I’ve chopped off so far. To date, I’ve made extra payments that equate to less than half of a full mortgage payment. However, it has cut off over 2.5 payments on the back-end of my mortgage. It is extremely motivating and all I want to do is continue working hard to knock it off sooner.

      Bert

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