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Pay Off Debt v Invest
Posted on 11/30/22 at 2:26 pm
Posted on 11/30/22 at 2:26 pm
You have $200,000 in hand.
$150,000 left of mortgage at 2.5% interest.
$15,000 left on vehicle at 1.9% interest.
$35,000 left on student loan at 7% interest.
Do you pay any or all of the debt off? If not, where do you put the cash you have in hand?
$150,000 left of mortgage at 2.5% interest.
$15,000 left on vehicle at 1.9% interest.
$35,000 left on student loan at 7% interest.
Do you pay any or all of the debt off? If not, where do you put the cash you have in hand?
25
Posted on 11/30/22 at 2:29 pm to DRock88
Student loan is a must to pay off.
The other two aren’t worth it with those interest rates.
But you could also be debt free entirely. Some people would say that’s worth way more than the lost opportunity cost on investing the rest.
The other two aren’t worth it with those interest rates.
But you could also be debt free entirely. Some people would say that’s worth way more than the lost opportunity cost on investing the rest.
Posted on 11/30/22 at 2:37 pm to PerceivedReality
That's why I'm torn on the correct advice.
Pretty simple to invest at rates greater than that mortgage and auto loan. Yet, equally appealing to be debt free. I guess the happy medium would be to pay off the debt but invest the monthly payments that are now interest free and earning interest.
Pretty simple to invest at rates greater than that mortgage and auto loan. Yet, equally appealing to be debt free. I guess the happy medium would be to pay off the debt but invest the monthly payments that are now interest free and earning interest.
Posted on 11/30/22 at 2:55 pm to DRock88
quote:
, equally appealing to be debt free. I guess the happy medium would be to pay off the debt but invest the monthly payments that are now interest free and earning interest
The advantage there is improving your cash flow. That can be security in the event of a job loss or major medical event.
Posted on 11/30/22 at 3:36 pm to DRock88
I’d pay off the student loan literally right now. I’d invest the rest and not even think about the other two loans.
Posted on 11/30/22 at 3:40 pm to DRock88
Neither baw
Get in more debt. Buy a 4 wheeler on credit and pay it off next year with a loaf of bread
Get in more debt. Buy a 4 wheeler on credit and pay it off next year with a loaf of bread
Posted on 11/30/22 at 3:40 pm to PhiTiger1764
Student loan seems like a no brainer, due to the interest rate. Except interest is currently suspended until, I think, like next summer...plus, they're considering at least some forgiveness, from what I've gathered.
Posted on 11/30/22 at 3:44 pm to DRock88
Pay off student loan. You can probably get high yield savings with the balance (~$165k) and generate about $400 a month interest. If you ladder up some CDs, you might be able to get that to $500 over the coming 12 months. Interest rates are unlikely to go down very much over the next 24 to 36 months. That's just a basic, no risk, cash flow solution. There is no reason to retire the under 3% debt in this environment other than peace of mind.
Posted on 11/30/22 at 3:49 pm to DRock88
Are your student loans privately financed or government loans?
Posted on 11/30/22 at 3:57 pm to DRock88
Personally, I would pay the student loan first at that higher interest rate (although as another poster said, until they end the forbearance, you might as well ride that wave).
The mortgage and car note just pay your minimum payment. Maybe put a little extra towards them each month if you want to feel like you're making faster progress to being debt free. But currently, you can get 3%+ in basic online savings accounts, so your money is going to earn more there than paying the debt. Obviously investing could yield even higher returns, but could risk some losses too. I would probably diversify a bit... put enough into the liquid savings account that you feel you've got your monthly expenses covered for at least 6 months and earn a decent interest rate, put some in CDs/bonds, and put some in stocks. That should be a good mix of peace of mind, while still getting better returns than paying off the low interest rate debt.
The mortgage and car note just pay your minimum payment. Maybe put a little extra towards them each month if you want to feel like you're making faster progress to being debt free. But currently, you can get 3%+ in basic online savings accounts, so your money is going to earn more there than paying the debt. Obviously investing could yield even higher returns, but could risk some losses too. I would probably diversify a bit... put enough into the liquid savings account that you feel you've got your monthly expenses covered for at least 6 months and earn a decent interest rate, put some in CDs/bonds, and put some in stocks. That should be a good mix of peace of mind, while still getting better returns than paying off the low interest rate debt.
Posted on 11/30/22 at 4:18 pm to DRock88
quote:
That's why I'm torn on the correct advice.
Pretty simple to invest at rates greater than that mortgage and auto loan. Yet, equally appealing to be debt free. I guess the happy medium would be to pay off the debt but invest the monthly payments that are now interest free and earning interest.
There is absolutely a VALUE to being debt free despite what many folks on this board will tell you. This value is almost always left out of the discussion when it comes to discussions about interest rates, payoffs, etc.
Being debt free is a great stress reducer and freedom expander. It really gives you options in life and being able to have options has value. For example, if everything was always about maximizing $, everyone on this board would be driving used honda civics with 300k miles on them. They dont because there is personal value in driving what they enjoy.
Another example is that if it was always about the $, people would be working at least 2 or 3 jobs and putting in 60 hour work weeks. Why don't they? Because there is a personal value they hold to having that free time at which the extra money doesn't cover the value of the free time. I think we'd all be willing too take pay cuts if it meant working 3 days a week instead of 5, right? But how much of a pay cut would you take? This is where you have to take some time to figure out what that value is for you. It will be different for everyone.
Posted on 11/30/22 at 4:21 pm to DRock88
Pay off the student loans now.
Put the rest in QQQ.
Winning.
Put the rest in QQQ.
Winning.
Posted on 11/30/22 at 4:39 pm to GeauxTigers777
quote:
Are your student loans privately financed or government loans?
US Department of Education.
Posted on 11/30/22 at 4:45 pm to Grinder
They’re never gonna end the student loan freeze
The democrats are gonna keep acting like they’re gonna knock money off before the election and then not go through with it but the “educated” people of loans will keep falling for it
The democrats are gonna keep acting like they’re gonna knock money off before the election and then not go through with it but the “educated” people of loans will keep falling for it
Posted on 11/30/22 at 5:26 pm to DRock88
quote:
US Department of Education.
Then for heaven's sake, don't pay it off. Interest currently isn't accruing. If the payment freeze ever ends, feel free to pay it off then. There's just no reason to now.
I wouldn't pay off any of them under those circumstances.
Posted on 11/30/22 at 6:07 pm to Joshjrn
quote:
Then for heaven's sake, don't pay it off. Interest currently isn't accruing. If the payment freeze ever ends, feel free to pay it off then. There's just no reason to now.
Agree.
Even better, put the student loan payments into an interest bearing account and drop the whole thing on the student loan when the freeze ends.
I'd still pay off the mortgage. Then you own your house outright. Then if there's a financial emergency you don't have to worry about the bank.
Pay the car note on schedule, unless you think you can make better use of the extra insurance you have to carry while it's the bank's car.
Posted on 11/30/22 at 6:24 pm to Joshjrn
I guess set enough into a high yield account that will pay the student loan off (plus some) whenever the freeze ends.
I like the idea of not having an auto loan, but then putting that monthly payment away into high yield. I know that 1.9% is really good, but I think I have to weigh depreciation in. I'd say the vehicle is worth at least $30,000 right now.
I'm still on the fence with the mortgage. But, I feel like 2.5% is so good that it's not worth worrying about. I should also just set the remainder away.
I like the idea of not having an auto loan, but then putting that monthly payment away into high yield. I know that 1.9% is really good, but I think I have to weigh depreciation in. I'd say the vehicle is worth at least $30,000 right now.
I'm still on the fence with the mortgage. But, I feel like 2.5% is so good that it's not worth worrying about. I should also just set the remainder away.
Posted on 11/30/22 at 6:30 pm to Bestbank Tiger
Yep. Pretty settled on letting the student loan ride until the freeze ends, but having the payoff set aside to gain interest.
Still somewhat torn on the mortgage. Several options, many of which have also been mentioned (pay it off, let it ride and invest, etc). Another option is to let it ride at 2.5%, invest some into the asset, and set some aside to gain interest.
The auto loan is really such a small piece that I think it boils down to personal preference. I think what trips me up is the depreciation piece.
Still somewhat torn on the mortgage. Several options, many of which have also been mentioned (pay it off, let it ride and invest, etc). Another option is to let it ride at 2.5%, invest some into the asset, and set some aside to gain interest.
The auto loan is really such a small piece that I think it boils down to personal preference. I think what trips me up is the depreciation piece.
Posted on 11/30/22 at 7:11 pm to DRock88
I also like the idea of setting aside the student loan payment in full in something liquid until they unfreeze or whatever the hell is going on with that stuff. It might get fully forgiven?. - I use Marcus. Did the same years ago until my payoff savings could stop doubling as my emergency fund. And I agree with others that there is a peace of mind factor to doing so or knowing you can.
Never had a car note, something my dad drilled into my brain and I’m sticking with it. For 15k I’d pay it off even at 1.9% and invest the payments and/or enjoy yourself with the extra cash flow.
Let the mortgage ride. Throw the 150k into the market and forget about it/max out your Roth and wife’s Roth if you’re married for this year and next.
Or… buy some crypto …?
Never had a car note, something my dad drilled into my brain and I’m sticking with it. For 15k I’d pay it off even at 1.9% and invest the payments and/or enjoy yourself with the extra cash flow.
Let the mortgage ride. Throw the 150k into the market and forget about it/max out your Roth and wife’s Roth if you’re married for this year and next.
Or… buy some crypto …?
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