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Started By
Message
Should I pay off my debt?
Posted on 10/14/15 at 8:33 am
Posted on 10/14/15 at 8:33 am
My SO just got a job that puts us in the $200K a year range. I have a car note that I owe $16K $460 a month @ 2.99%. As of right now I plan to throw most of my paycheck on that note. I pay all the bills and the house note, except my SO's car note. She just has to worry about her car note. Also, I will be getting a $500 raise in May 2016 which is the main reason I want to eliminate my car note debt immediately. Is wanting to eliminate this debt and add $460 to my take home pay a good or bad idea? TIA
This post was edited on 10/21/15 at 12:48 pm
7
Posted on 10/14/15 at 9:11 am to 13SaintTiger
Good idea. Do it bro.
Posted on 10/14/15 at 9:32 am to 13SaintTiger
Its not a horrible idea, but keep in mind:
Every dollar you put towards that note is giving you a return of 2.99%
You can get a much higher return in the market.
Every dollar you put towards that note is giving you a return of 2.99%
You can get a much higher return in the market.
Posted on 10/14/15 at 9:34 am to Volvagia
quote:
Every dollar you put towards that note is giving you a return of 2.99%
You can get a much higher return in the market.
Those are post tax dollars
Posted on 10/14/15 at 9:40 am to Volvagia
I absolutely hate this line of reasoning regarding short-term debt. In the short-term, he could get his arse whipped in the market. Pay the car off.
This post was edited on 10/14/15 at 9:41 am
Posted on 10/14/15 at 9:48 am to iknowmorethanyou
quote:
Pay the car off.
leaning towards this, thanks
Posted on 10/14/15 at 9:59 am to 13SaintTiger
No problem, congrats on the raise.
Posted on 10/14/15 at 10:39 am to 13SaintTiger
I would, but I really like to have as much disposable income every month as possible.
Posted on 10/14/15 at 11:10 am to iknowmorethanyou
Wait, why are we concerned about short term losses in the market?
The OP has an emergency fund, no? If not, that takes priority over both investment and accelerated debt repay.
So short term is covered.
So why are we making medium and long term choices based on the risk assessment lens of the short term.
What I absolutely hate is the reasoning of people who hate all debt and consider it inherently a burden rather than a tool.
If he was paying ~5% interest on the car I would have agreed with you. But he isn't. He is paying a low rate below historical inflation averages. If people wish to offer you cheap money....USE IT.
You do realize he would achieve a higher return (albeit a small one) than prepaying the loan even investing as conservatively as an high quality intermediate term bond? Even with anticipated rate hikes?
Never mind putting it in the S&P500.
And assuming the loan is over 3 years left in length....how often does the market "whip your arse" over that time frame.
And if anything, the short term aspect is an argument against not for.
At least pre paying a house you are looking at a return over 15+ years. Once the loan end, the return does. Returns on securities continue as long as you hold them.
I'm not saying don't prepay the loan. The psychological aspects of increasing cash flow and being debt free does have a value.
How much is up to you.
I'm just saying to not to forget the mathematical side and consider opportunity costs on putting money to pay off a low interest loan faster so you can get a clear title on a depreciating asset compared to owning appreciating assets.
The OP has an emergency fund, no? If not, that takes priority over both investment and accelerated debt repay.
So short term is covered.
So why are we making medium and long term choices based on the risk assessment lens of the short term.
What I absolutely hate is the reasoning of people who hate all debt and consider it inherently a burden rather than a tool.
If he was paying ~5% interest on the car I would have agreed with you. But he isn't. He is paying a low rate below historical inflation averages. If people wish to offer you cheap money....USE IT.
You do realize he would achieve a higher return (albeit a small one) than prepaying the loan even investing as conservatively as an high quality intermediate term bond? Even with anticipated rate hikes?
Never mind putting it in the S&P500.
And assuming the loan is over 3 years left in length....how often does the market "whip your arse" over that time frame.
And if anything, the short term aspect is an argument against not for.
At least pre paying a house you are looking at a return over 15+ years. Once the loan end, the return does. Returns on securities continue as long as you hold them.
I'm not saying don't prepay the loan. The psychological aspects of increasing cash flow and being debt free does have a value.
How much is up to you.
I'm just saying to not to forget the mathematical side and consider opportunity costs on putting money to pay off a low interest loan faster so you can get a clear title on a depreciating asset compared to owning appreciating assets.
This post was edited on 10/14/15 at 11:13 am
Posted on 10/14/15 at 11:19 am to iknowmorethanyou
quote:
I absolutely hate this line of reasoning regarding short-term debt. In the short-term, he could get his arse whipped in the market. Pay the car off.
He wouldn't be investing for the short term. Paying off a car with that low of an interest rate wouldn't save that much in interest. If you invest your remaining cash for the long term, that extra cash will be exponentially larger in 10,20,30 years.
Posted on 10/14/15 at 1:19 pm to Volvagia
quote:
Its not a horrible idea, but keep in mind:
Every dollar you put towards that note is giving you a return of 2.99%
You can get a much higher return in the market.
Let me amplify on this a bit. A 3% guaranteed return isn't bad, whereas there is no guarantee that investing it will do better or worse. That said, 3% isn't a great return either and you may be better off having the money handy or contributing more to tax-sheltered retirement accounts if you can.
At 3% I think you could really go either way.
Posted on 10/14/15 at 2:37 pm to 13SaintTiger
quote:
Should I pay off my debt?
Paying off debt is always a good idea.
Posted on 10/14/15 at 2:37 pm to foshizzle
quote:
At 3% I think you could really go either way.
eliminating debt also offers flexibility that saving doesn't. The less debt you have the more choices you have career wise. Debt service can tie you to a job.
Posted on 10/14/15 at 3:44 pm to Hawkeye95
What if he was paying interest at 4.99? Just wondering I'm in a similar position have saved some money as a downpayment on my new house but if i pay my car note off then I can add that to my house note? Thx
Posted on 10/15/15 at 12:53 pm to 13SaintTiger
"Debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice." — Dave Ramsey
That said, I have debt. Reasonable "within my means" debt at very low interest rates. For example, 1.99 % unsecured auto loan - I can get a better return on my money than 1.99 %, so for now, I will live with an auto loan.
Only you can decide what is best for you and your situation. Just make sure you have a fully-funded emergency fund should you run into "life" problems.
That said, I have debt. Reasonable "within my means" debt at very low interest rates. For example, 1.99 % unsecured auto loan - I can get a better return on my money than 1.99 %, so for now, I will live with an auto loan.
Only you can decide what is best for you and your situation. Just make sure you have a fully-funded emergency fund should you run into "life" problems.
This post was edited on 10/15/15 at 12:54 pm
Posted on 10/15/15 at 1:06 pm to 13SaintTiger
I am not sure you know the significance of the situation you are in at the moment. The decisions you and yours make over the next year will more than likely define your position ten/twenty years from now.
If you can save/invest 2/3 of that income over the next 10-20 years you will be in a very enviable position from most of your peers.
Nothing wrong with being thrifty on wants and only holding healthy debt in a few revolving accounts. The goal in life is to make your money work for you at some point rather than having to work for your money.
If you can save/invest 2/3 of that income over the next 10-20 years you will be in a very enviable position from most of your peers.
Nothing wrong with being thrifty on wants and only holding healthy debt in a few revolving accounts. The goal in life is to make your money work for you at some point rather than having to work for your money.
Posted on 10/15/15 at 8:09 pm to 13SaintTiger
Pay it off then start putting 300 of the 460 your paying on the next note.
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