Friday, June 20, 2014

Rethinking Our Debt Payoff Plan

I'm sure most of you know that last year my wife and I bought a house.  While we love the house the unfortunate thing is that we went from renting a fairly small house to owning a much larger one.  One of the hidden costs in making that move was that we didn't have nearly enough furniture to really utilize our new house.  So we made a trip down to the local furniture store and picked up a new living room and bedroom set and went to Sears to purchase a new refrigerator.

Since we were able to purchase everything at 0% interest we weren't in a big hurry to pay off the debt especially while the markets were still offering solid values.  We figured why throw extra money towards our debt, especially at 0%, when that's such an easy hurdle to beat through investing.  Mr. Market has continued his relentless march higher and it's been doubly bad because I'm sitting on a bunch of cash right now, much more than I'd like to.  That's why I've been making a few more purchases over the last couple of weeks even though they haven't been at the most ideal valuations.

I had my wife tally up our total debts and we have about $3,000 left.  Two of them should be gone with their next payments and we'll be left with about $2,500 on one more account.  At this point with the markets not offering a whole lot of value I'm leaning towards paying off the debts to get rid of them and help improve our cash flow.  It will only take about 10% of our capital waiting to be invested to go on and pay off the debts.  So my question to you is, should we pay off the rest of the debts and be done with them or continue to look for opportunities to invest?  After all 0% isn't exactly a high hurdle to beat.


13 comments:

  1. It's hard to quantify the price of having one less thing on your brain. I don't blame you for considering it! Have a great weekend
    -Bryan

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  2. Paying off the debt definitely gives a psychological relief/boost. But I wouldn't sweat too much if it is at 0%.

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    1. I agree with DGJ. The psychological relief will be a boost, but if you have everything on cruise control, you dont have to worry about the 0% debt.
      Theres always some opportunities out there for investing - Im now seriously considering getting into emerging markets.

      R2R

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  3. Pay off the Debts I would urge. Especially with no big market opportunities right now. At $3000 is not a big amount you would be taking away from investments so its worth that piece of mind. Plus if your situation changes in the future you would be better prepared.

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  4. If it's interest free debt, I wouldn't pay it off in one go. I would set up a monthly payment plan to pay it off regularly in installments over the life of the loan. Even if you put the $3000 in a high interest checking / savings account earning 0.5 to 1%, you'd still be better off and have the money ready to pay the loan at any time.

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    1. I have approximately the same amount of debt in 0% medical bills, so I pay 12 equal monthly payments. Even with inflation rate it's better to pay later than now mathematically.
      I would invest.

      WE#1

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  5. I concur...pay of the debt. There is definitely not a lot of sales in this stock market. Plus, you'll sleep better at night knowing your debt will be paid off sooner (even if its 0% interest). :) AFFJ

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  6. how long your 0% will last? If I would be you, I would just calculate how much per month I have to pay in order keep having 0% and pay in small amounts every month and keep investing. Your good credit scores offered you 0% credit, so why not use it as an opportunity?

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  7. With zero % interest? The answer is simple and straightforward - invest. Even if you put the money in a savings account, you will still make more than the cost of the loan. If you have extra money, tossing them against a 0% loan is not a good idea.

    Even with valuations this high, there are still opportunities. I would love to have 0% interest loans. I would invest the money and not rush paying it off at all.

    Start selling puts against stocks you do not mind owning and use the cash as collateral (cash secured puts), you will make a lot of cash. If you pay it off, get rid of your cash, you will lose a chance which is out there.

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  8. Pay off the debt. This is risk free. If, heaven forbid, you were to get sick or be disabled, the 0% "free credit" would turn into something significantly more. Risk should be factored in, not just which has the best interested rate.

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  9. There is no such thing as 0% interest. The 7-8% financing cost is baked into your sofa/dining room set.

    They're just waiting for you to slip up on a payment. Play with snakes, you will be bit.

    Wise up, pay it off, and stay out of the weeds for.

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  10. It is nice to pay off the debt when interest rate is low or 0%. Most of people find the easy and affordable way to get rid of debt within time period.

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  11. My building manager is really good and truly cares about his tenants and works as a great 'liaison' between the owner and tenants daily.

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