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re: Buy stocks or pay off student loans & car?
Posted on 1/18/15 at 10:22 pm to TigerstuckinMS
Posted on 1/18/15 at 10:22 pm to TigerstuckinMS
quote:
There sure is someone not using a brain here.
If OP gives the loan holder $13k to remove the debt this instant, what does OP have? No dollars and no debt.
If OP pays the 0% interest car loan off monthly on time over the course of the next three years (just an assumption here) and invests that $13k making 2% a year simple interest, at the end of the life of the loan, what does the OP have? Almost $800 and no debt.
Either way, he's gonna pay $13k. The only question is whether he's gonna make the returns on that 13k over the remaining life of that loan or the loanholder will.
I see what you're trying to do here, but you should compare instant to instant, and 3 years from now to 3 years from now.
over the long run, the op might come out ahead on interst earned. But that's based on assumptions. Those assumptions may not swing in your favor, but the constant is the debt. And a debtor is slave to the lender, even at zero percent interest.
1
Posted on 1/18/15 at 11:07 pm to jacquespene8
I'm in the "pay them off" camp. Yes, the math of the 0% loan makes sense, but I'll never owe anything on a depreciating asset.
Some people on this board would have you believe that they maintain 100% debt on everything they have, and remain 100% invested in the market with their borrowed money. That's not the real world.
Some people on this board would have you believe that they maintain 100% debt on everything they have, and remain 100% invested in the market with their borrowed money. That's not the real world.
This post was edited on 1/18/15 at 11:09 pm
Posted on 1/19/15 at 12:38 am to dragginass
Please explain to me why the fact that cars are "depreciating assets" means that you would rather buy them outright or pay them off early instead of taking advantage of an interest free loan? If someone offers you an interest free loan there are basically handing you money (with inflation adjustments) and allowing you to invest extra cash in appreciating assets.
Posted on 1/19/15 at 12:41 am to lsugradman
If a dealership offers you an interest free loan they are typically charging you more on the front end costs of the vehicle. So why would you pay off the loan early and not let time work in your favor instead of against you?
Posted on 1/19/15 at 7:50 am to jacquespene8
This thread started off well and then the Dave Ramsey mouthbreathers rushed in.
If you're really worried about not being able to pay off your note in a shite hits the fan scenario, Invest in fixed income with the amount that you need to offset the outstanding car loan.
Lendingclub.com notes would be a good fit here and would yield you a net of 8 to 10%.
To address the guy who said that having low interest debt to fund high ROI investments is not real life, I am living proof and doing well.
If you're really worried about not being able to pay off your note in a shite hits the fan scenario, Invest in fixed income with the amount that you need to offset the outstanding car loan.
Lendingclub.com notes would be a good fit here and would yield you a net of 8 to 10%.
To address the guy who said that having low interest debt to fund high ROI investments is not real life, I am living proof and doing well.
Posted on 1/19/15 at 8:38 am to TheHiddenFlask
Tell me more about lendingclub.com.
Posted on 1/19/15 at 8:43 am to TheHiddenFlask
This dude has ruined multiple threads with this BS. It's such a simple stance to take and why DR makes so much money selling his "methods" to irresponsible people.
1. Depreciating asset comments - The vehicle will be a depreciating asset whether you buy with cash or you borrow (:ohnogif:). The idea is even if you become "upside down" on the loan, you still have the original amount that would have been set aside for the "cash" purchase. It doesn't disappear (except in the case of the undisciplined which I mentioned). Even if you set the money in a 100% insured savings account, for zero risk, you could pull the monthly payment out and still be net positive. The cost of the vehicle is exactly the same. 0% offers are a volume move. Negotiations are all the same.
2. Slave to lenders - If someone is willing to let you purchase "anything" divided up over X equal payments wih no additional charges (ie. 0% interest), you certainly take it. It's simple time value of money. Money today is always worth more than money in the future. If "life punches you in the nuts", you have an emergency fund to cover, AND the original capital you would have used for the "borrowed" money. The higher the risk of lost capital, the more your emergency fund needs to be.
For the responsible Money Talk poster who is not your average stretched consumer, the early advice in this thread is absolutely accurate and the most financially wise.
If you manage your money based on feelings and emotion, follow Dave Ramsey and live like a monk to ensure you don't enslave yourself to the big bad banks.
1. Depreciating asset comments - The vehicle will be a depreciating asset whether you buy with cash or you borrow (:ohnogif:). The idea is even if you become "upside down" on the loan, you still have the original amount that would have been set aside for the "cash" purchase. It doesn't disappear (except in the case of the undisciplined which I mentioned). Even if you set the money in a 100% insured savings account, for zero risk, you could pull the monthly payment out and still be net positive. The cost of the vehicle is exactly the same. 0% offers are a volume move. Negotiations are all the same.
2. Slave to lenders - If someone is willing to let you purchase "anything" divided up over X equal payments wih no additional charges (ie. 0% interest), you certainly take it. It's simple time value of money. Money today is always worth more than money in the future. If "life punches you in the nuts", you have an emergency fund to cover, AND the original capital you would have used for the "borrowed" money. The higher the risk of lost capital, the more your emergency fund needs to be.
For the responsible Money Talk poster who is not your average stretched consumer, the early advice in this thread is absolutely accurate and the most financially wise.
If you manage your money based on feelings and emotion, follow Dave Ramsey and live like a monk to ensure you don't enslave yourself to the big bad banks.
Posted on 1/19/15 at 9:09 am to TDsngumbo
Start a new thread about LC and I'll talk there. I try not to derail threads.
Posted on 1/19/15 at 9:48 am to TDsngumbo
For starters you are not looking at a lump sum. This would be paid off over time.
So basically 6 months to pay off the SL. You now are also 6 more months into the car loan.
How much of that retirement account is a roth vs other retirement investments?
Does 10K in the emergency fund represent at least three months in spending?
Do you have any other big expenses coming up soon like buying a house, etc?
So my priority list would be as follows:
1) Pay off SL
2) Take full advantage of 401K match if applicable
3) Raise emergency fund to 3 months of spending OR fund Roth IRA. Do both before moving on to step 4.
4) Retail investment accounts.
I know a lot of people on this board say to use your Roth as your emergency fund. I'm not a fan of that, as A) that money really should stay for retirement and B) stuff always seems to happen at the same time, like you lose your job during a market correction. So you would have lost some of your Roth money, and you are pulling it out when the market is down, which is the opposite of what you should do.
As far as the keeping 0 percent debt vs paying off 0 percent debt issue... I see both sides. I would feel more comfortable if I had the money in the bank to handle all or at least a year's worth of monthly payments.
To me, 0 percent debt on a depreciating asset is a great deal! Financially over the long run, it's cheaper than paying cash. But it would suck if you lost the car because you could not make the payments.
So basically 6 months to pay off the SL. You now are also 6 more months into the car loan.
How much of that retirement account is a roth vs other retirement investments?
Does 10K in the emergency fund represent at least three months in spending?
Do you have any other big expenses coming up soon like buying a house, etc?
So my priority list would be as follows:
1) Pay off SL
2) Take full advantage of 401K match if applicable
3) Raise emergency fund to 3 months of spending OR fund Roth IRA. Do both before moving on to step 4.
4) Retail investment accounts.
I know a lot of people on this board say to use your Roth as your emergency fund. I'm not a fan of that, as A) that money really should stay for retirement and B) stuff always seems to happen at the same time, like you lose your job during a market correction. So you would have lost some of your Roth money, and you are pulling it out when the market is down, which is the opposite of what you should do.
As far as the keeping 0 percent debt vs paying off 0 percent debt issue... I see both sides. I would feel more comfortable if I had the money in the bank to handle all or at least a year's worth of monthly payments.
To me, 0 percent debt on a depreciating asset is a great deal! Financially over the long run, it's cheaper than paying cash. But it would suck if you lost the car because you could not make the payments.
Posted on 1/19/15 at 9:50 am to LSUtigerME
quote:
For the responsible Money Talk poster who is not your average stretched consumer, the early advice in this thread is absolutely accurate and the most financially wise
While I get what you are saying... the "responsible Money Talk poster" really isn't the ones we need to help. The ones we need to help are the ones that don't know how to manage their money. And for some of them, quitting debt cold turkey truly is best. At that point, you are trying to change a lifestyle, which is much more than a simple financial calculation.
Of course... someone in that boat probably can't get a zero percent interest rate on a car, either... so DR's policies might not be needed for the OP.
Posted on 1/19/15 at 1:28 pm to LSUtigerME
so a person is more responsible if they borrow money to buy something they can't afford? it sounds undisciplined to me.
I'm sorry to offend you by "ruining threads." The OP asked for opinions and I certainly didn't want to hold mine back when all he was getting the "stay in debt" responses. OP can do what he wants, and I certainly don't judge anybody who chooses to do different things with there own finances. I just feel the more responsible way is to live debt free. OP could be completely debt free in 13-14 months according to my rough estimate. Why stay in debt for another two years to reap benefits of a zero percent interest loan that is no different than payin cash up front.
Dude.
I'm sorry to offend you by "ruining threads." The OP asked for opinions and I certainly didn't want to hold mine back when all he was getting the "stay in debt" responses. OP can do what he wants, and I certainly don't judge anybody who chooses to do different things with there own finances. I just feel the more responsible way is to live debt free. OP could be completely debt free in 13-14 months according to my rough estimate. Why stay in debt for another two years to reap benefits of a zero percent interest loan that is no different than payin cash up front.
Dude.
Posted on 1/19/15 at 1:33 pm to jacquespene8
quote:Simple...
Why stay in debt for another two years to reap benefits of a zero percent interest loan that is no different than payin cash up front.
-The contracted price of his car is likely higher due to the zero interest loan so why throw that money he could have saved away
-Inflation makes the purchase price of his car less expensive by paying the minimum
-That extra money can be put to work making more money, thus making the purchase price of the car even less
-He has an emergency fund. If shite really goes bad, he can still pay from his emergency fund until things get better (and that is assuming he doesn't have a wife or parent that can help him out in bad times)
This post was edited on 1/19/15 at 1:34 pm
Posted on 1/19/15 at 1:43 pm to jacquespene8
Never get in a hurry to accelerate payments on a depreciating asset...regardless of what Dave says.
Posted on 1/19/15 at 1:49 pm to lsugradman
Since you asked "me", because there is no such thing as 0% with cars. I have never encountered a situation where a cash purchase wasn't a better deal for me.
That is a philosophy though, and not an answer to the OP.
When you get equity in your home, do you refinance it to take the equity and invest? I doubt many of you follow your own advice to the degree you proclaim.
That is a philosophy though, and not an answer to the OP.
When you get equity in your home, do you refinance it to take the equity and invest? I doubt many of you follow your own advice to the degree you proclaim.
Posted on 1/19/15 at 1:54 pm to iknowmorethanyou
I get what's being said. The value of each installment becomes less over time, to the lender and to you. You take less of a hit in value each time you make a payment. But a zero percent loan has shorter terms to lessen this impact on the lender. Unless you could defer the entire payment to three years down the road, the benefit you are reaping still exists, but it is negligible in my opinion due to the short time frame compared to the fact that you don't own the car, but you're still responsible for the amount owed. When you sell a car you don't own, you still have to cover the difference.
I'll finalize my opinion: you will possibly see benefits from riding out the 0% loan. True. But they are such small benefits compared to the risk, and the emotional aspect of being in debt. My advice to the op is to knock out all debts asap, and then breathe easy.
I'll finalize my opinion: you will possibly see benefits from riding out the 0% loan. True. But they are such small benefits compared to the risk, and the emotional aspect of being in debt. My advice to the op is to knock out all debts asap, and then breathe easy.
Posted on 1/19/15 at 6:54 pm to dragginass
No one here was talking about equity cash outs. There would be significant fees with that, so it's not at all comparable. I would be comfortable sayin. That few regular posters here are prepaying their mortgages aggressively, but are choosing to use their extra cash flow to fund retirement accounts, which would be much more equivalent to what we are suggesting.
You DR types always get so mad when your piss poor financial advice gets dismantled by people who understand finance beyond what was in a few books written at the third grade level.
You DR types always get so mad when your piss poor financial advice gets dismantled by people who understand finance beyond what was in a few books written at the third grade level.
Posted on 1/19/15 at 10:41 pm to jacquespene8
quote:
I'll finalize my opinion: you will possibly see benefits from riding out the 0% loan. True. But they are such small benefits compared to the risk, and the emotional aspect of being in debt. My advice to the op is to knock out all debts asap, and then breathe easy.
What is the risk? Even if you drop the cash into a high yield savings acount for the life of the loan he still comes up marginally ahead. I rather have that cash at hand in an emergency scenario instead of having to liquidate the vehicle.
I understand that you have a single track thought process pointed at elimitating debt, but it makes no sense mathematically or logically in any regard, it's purely psychological.
Consider the fact that some people have the discipline to do things that make logical sense, despite some horseshite radio finance evangelist saying differently.
Posted on 1/19/15 at 11:18 pm to TheHiddenFlask
quote:
No one here was talking about equity cash outs. There would be significant fees with that, so it's not at all comparable. I would be comfortable sayin. That few regular posters here are prepaying their mortgages aggressively, but are choosing to use their extra cash flow to fund retirement accounts, which would be much more equivalent to what we are suggesting.
You DR types always get so mad when your piss poor financial advice gets dismantled by people who understand finance beyond what was in a few books written at the third grade level.
Just because I would never finance a depreciating asset doesn't mean I'm preaching DR. Try thinking for yourself.
And my mortgage comment is 100% relevant. You base your suggestions on interest rates only, so using your own logic if someone has any significant equity in their home they must also be at 3rd grade level. Why even have a mortgage? Get an interest only loan and every penny to your name can then become investable.
Posted on 1/20/15 at 7:19 am to jacquespene8
quote:
ave to respectfully disagree. A man who chooses to stay in debt when he doesn't have to is not making a wise decision. It's not free money either. You pay a butt load of interest of you don't pay it off in time. You never know when life is gonna punch you in the nuts, so why remain slave to a lender who will make life worse when that happens?
If you have to borrow money so that you can make investments elsewhere, then are you really doing as well as you think you are?
I'd knock out the SL quickly then focus the momentum on the car. Don't stop til you're completely out of debt except the house, then ramp up the retirement savings.
Remember, if you still owe money on something, you don't own it. Someone else owns it.
Bingo boys we have a winner.
Posted on 1/20/15 at 10:01 am to dragginass
Just because you would live by some absurd rule based in absolutely nothing (like never finance a depreciating asset) means you are about as dense headed as I asserted. Term debt is DESIGNED to finance depreciating assets. Your philosophy is bad as defined by every CFO at a large company ever. It's not an opinion, it's bad advice. If you want to be debt free in spite of logic and math, that's fine, but call it what it is, a set of bad decisions that make you feel better and possibly keep you from doing something absurdly dumb.
No, your mortgage comment is irrelevant. It's like saying "you grounded your kid? Why didn't you beat him with a belt?". It's a prototypical straw man.
With that said, if someone would give me an IO loan at the rate of my fixed mortgage for 30 years, I would definitely take it. The reason banks don't do that is because there is an imbedded put in mortgages and they are protecting themselves by making that put further out of the money through principal payments.
Additionally, some people (I'm looking at you) can't understand simple accounting and finance and would just spend the money instead of saving it. Those people "must be protected from themselves" (the danger comes from government mandated credit acceptance, but I won't digress), so the laws and policies are written to the lowest common denominator (looking at you again). This guy is not the lowest common denominator, as he has shown the ability to save and an interest in investing.
No, your mortgage comment is irrelevant. It's like saying "you grounded your kid? Why didn't you beat him with a belt?". It's a prototypical straw man.
With that said, if someone would give me an IO loan at the rate of my fixed mortgage for 30 years, I would definitely take it. The reason banks don't do that is because there is an imbedded put in mortgages and they are protecting themselves by making that put further out of the money through principal payments.
Additionally, some people (I'm looking at you) can't understand simple accounting and finance and would just spend the money instead of saving it. Those people "must be protected from themselves" (the danger comes from government mandated credit acceptance, but I won't digress), so the laws and policies are written to the lowest common denominator (looking at you again). This guy is not the lowest common denominator, as he has shown the ability to save and an interest in investing.
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