Let's talk personal debt

[dwkennedy]

I did "B".

The money is invested in FDIC insured accounts for 4% (Coppermark bank)

I ended up with a 2.75% mortgage at Allegiance Credit union.

I am making money on the deal, even after taxes... and the money is always there to pay off the mortgage, in case interest rates I can safely earn drop below the 2.75% (after tax) If I were to lose my income for a while, I would also have a pretty good cushion to fall back on.

 

[Rod Snell]

the missed investment opportunity carries equal weight. Why not try Plan 50/50 A/B?

A good idea is good, and a bad idea is bad, whether you do it a little or a lot.
The erroneous assumption is that you can "make more from the investment than the cost of the loan," which is seldom true unless you are adding work like in a small business. Even then, look at the small business failure rate.
Right now, the investment market is unique in history, with the Federal Govt buying the safe investments with printed money to "force investors to invest in high-risk areas to stimulate the economy."
"High risk" means you can lose the principle, and wind up with less money than if you just had kept it in a box.

Money spent on interst on a loan, unless you have a definite business plan, might as well be thrown into the air on a windy day. An investment MAY pay, but the interest money IS GONE.

 

[10Seconds]

B is theoretically better but there are no guarantees.

A is a sure thing. I would do it and sleep well at night.

 

[Free Trapper]

Being debt free is the greatest feeling in the world !

 

[Boomer7]

I had this debate earlier. My plan was pay off my house, buy a newer, bigger, nicer house with low interest rates and rent out the paid off house as another source of income. A 30 year year mortgage in my opinion is a gimmick. Anything paid for is the way to go. I do not care about the tax write off I care about all the interest I am having to pay over 30 years. My 2 cents anyways.

 

[stick4]

Being debt free is the greatest feeling in the world !

Have been for 15 years. Bought my cycle & pickup just used enough to beat the deprecation. Bought her two new cars. All cash. I don't make enough money to put a banker on my payroll.

 

[OKCShooter]

I was thinking A. But I've got 3 guys in their 60s, all worth 7 figures, who know my situation a little better. My situation being that my wife and I are 30 years from retirement and are behind on our retirement & investments for our age. They have all told me this is the cheapest money I'll ever get in my lifetime. They think I should pull out a big chunk of equity (maybe 50-60% of value) at ~3% and I should be able to make a better return if not much better.

I told them I'd just make my former house payment into an investment account but since I'm behind, they think it would be wiser to start with a larger principal. I love the thought of being debt free, but it's hard to argue with the rich, old bastards. I'd be happy with any of their situations at their age.

I know a bunch of 7 figure guys, and they are well below the age of 60...

Just picture these 2 very real scenarios:

1) Finance house in 2006 and put everything extra in market (to the tune of $200K)

2) Pay off house (To the tune of $200K) and continue to invest slowly and wisely.

Market CRASHES in 2008.

Which guy do you want to be?

I PROMISE that there are more DEBT-FREE RICH GUYS than there are leverage ones.

 

[soonersfan]

Your 7-figure friends are right. Getting money at under 3% is ridiculous. Put your house on a 15 year note at 2.75%. Then take your cash and buy as much rental property as you can at 3.5%. Let your renters pay off those houses while you pay off yours. You'll beat the spread on real estate appreciation alone, not to mention the equity you'll build as you go along.

I'm all for getting out of debt but paying off your house is not going to build you a revenue stream for retirement. It only means you won't have to work as much when you're 80 years old to pay the bills. Debt free does not eliminate taxes, utilities, food, gas and insurance. You need revenue if you want to be debt free and retired some day.

 

[Mad Professor]

I PROMISE that there are more DEBT-FREE RICH GUYS than there are leverage ones.

Very True

 

[gl89aw]

I wouldn't do either, A friend paid off his house early because of a windfall, didn't take into consideration that the taxes and insurance now had to be paid seperately. He would have been better off making the mortgage payment with a good low interest rate and investing the windfall at a higher rate which should have been easy, ended up costing him money in the long run but he did have the satisfaction of only owing the taxes and ins.