What is your debt interest rate threshold?

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profet
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What is your debt interest rate threshold?

Post by profet » Wed Jun 27, 2018 10:52 am

I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?

bloom2708
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Re: What is your debt interest rate threshold?

Post by bloom2708 » Wed Jun 27, 2018 10:56 am

I would "search and destroy" everything except the mortgage.

You can do it slow or fast, months or years. Debt is an anchor slowing you down.

Read "The Total Money Makeover" by Dave Ramsey. Even if you decide to keep your debts, it is a good perspective to own.

The longer you invest (start young), the more time you have. But, if you can slay your debt fast, then you can save more as long as you don't borrow again.
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

N10sive
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Re: What is your debt interest rate threshold?

Post by N10sive » Wed Jun 27, 2018 10:58 am

This is probably one of the most common threads on here. This link is referenced in many of them

https://www.whitecoatinvestor.com/pay-o ... or-invest/

Its not just about interest rate though, you have to look at your complete financial picture: emergency savings, salary, job stability, debt amount, retirement savings etc.

michaeljc70
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Re: What is your debt interest rate threshold?

Post by michaeljc70 » Wed Jun 27, 2018 11:14 am

To me, it depends on where the equity market is (this is subjective) and what current interest rates are. I have a 3.3% mortgage and have made no effort to pay it early. If it was 5%, I would work on paying it early (I get no tax benefit from the interest). If the market just dropped 30% and my mortgage was 5%, I'd probably put extra money in the stock market. I don't finance anything else unless I were to buy a new car and they gave me a ridiculously low rate.

MnD
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Re: What is your debt interest rate threshold?

Post by MnD » Wed Jun 27, 2018 11:19 am

Imagine you had no debt. At what interest rate would you take on debt in order to invest.
That threshold should be the same answer as the threshold to pay off debt you have.
My threshold would probably be 1% if the debt wasn't a nuisance.
I consider things like auto titles being held by the bank and home loans with escrow accounts for taxes and insurance to be nuisances.
If I could get a nuisance-free 1% loan for a decent duration I'd do it and invest it.

delamer
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Re: What is your debt interest rate threshold?

Post by delamer » Wed Jun 27, 2018 11:24 am

N10sive wrote:
Wed Jun 27, 2018 10:58 am
This is probably one of the most common threads on here. This link is referenced in many of them

https://www.whitecoatinvestor.com/pay-o ... or-invest/

Its not just about interest rate though, you have to look at your complete financial picture: emergency savings, salary, job stability, debt amount, retirement savings etc.
In addition, you’ll be stuck with the student loan debt even in the event of bankruptcy. So getting rid of that should be a high priority.

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SurfCityBill
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Re: What is your debt interest rate threshold?

Post by SurfCityBill » Wed Jun 27, 2018 12:26 pm

Pen Fed Auto Loan 0.99%.
Pen Fed 6 mos CD 1.75%.

If the numbers were reversed I'd eliminate the loan.

Hoosierdom
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Re: What is your debt interest rate threshold?

Post by Hoosierdom » Wed Jun 27, 2018 12:40 pm

For me anything over 5 I would pay aggressively, anything under 3 I would definitely not worry about and in the middle it depends on a host of factors. Those are admittidly arbitrary numbers.

lazydavid
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Re: What is your debt interest rate threshold?

Post by lazydavid » Wed Jun 27, 2018 2:02 pm

Hoosierdom wrote:
Wed Jun 27, 2018 12:40 pm
For me anything over 5 I would pay aggressively, anything under 3 I would definitely not worry about and in the middle it depends on a host of factors. Those are admittidly arbitrary numbers.
I'm somewhere in this ballpark. We used to make extra payments on our 4.85% mortgage, but not to the point of throwing every extra dollar that way. When we refinanced to 2.5%, I told my wife that other than being one payment ahead (We will make our August payment next Monday) as a safety net, we would not put one extra penny towards paying it off.

We're coming up on needing/wanting a new car, and have 1.5-2x the amount we'd need to pay cash in our "slush fund". But I'm leaning towards going with 0-1.9% financing instead.

GAAP
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Re: What is your debt interest rate threshold?

Post by GAAP » Wed Jun 27, 2018 3:24 pm

Turning the question around, a loan is worth getting/keeping when the received value from the loan clearly exceeds the cost of the loan.

A mortgage probably qualifies to a degree -- but at some cost, it doesn't anymore.

Education should usually qualify, if the loan is not used to inflate college living standards.

A car loan might qualify if it is a requirement to get a better paycheck or reduces current expense sufficiently.

Payoff then becomes a cost/benefit analysis. The loan terms will matter. Prepayment penalties are one possible issue. The length (and therefore total cost) of the loan is another -- a 1.6% car loan due next month is different than one due in 8 years, etc.

Of course, the interest rate charged on a loan can only be evaluated in comparison to the interest rate available from investment returns. The resulting answer will change over time.

soccerrules
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Re: What is your debt interest rate threshold?

Post by soccerrules » Wed Jun 27, 2018 3:35 pm

my debt interest ? -- I have no interest in debt.

I think most individuals desire to shed debt as they age. (not all, just most)

I have read a number of times that for the vast majority of society - DEBT - is a killer to wealth. Hard to build wealth with a debt collar, especially consumer debt.

I plan to retire my mortgage as my only debt in 4-5 years, 1-2 years prior to ER.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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triceratop
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Re: What is your debt interest rate threshold?

Post by triceratop » Wed Jun 27, 2018 3:35 pm

delamer wrote:
Wed Jun 27, 2018 11:24 am
N10sive wrote:
Wed Jun 27, 2018 10:58 am
This is probably one of the most common threads on here. This link is referenced in many of them

https://www.whitecoatinvestor.com/pay-o ... or-invest/

Its not just about interest rate though, you have to look at your complete financial picture: emergency savings, salary, job stability, debt amount, retirement savings etc.
In addition, you’ll be stuck with the student loan debt even in the event of bankruptcy. So getting rid of that should be a high priority.
Why a high priority? The 3-month T-bill rate is 1.93% and the interest rate on his student loan is 1.6%.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

delamer
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Re: What is your debt interest rate threshold?

Post by delamer » Wed Jun 27, 2018 4:42 pm

triceratop wrote:
Wed Jun 27, 2018 3:35 pm
delamer wrote:
Wed Jun 27, 2018 11:24 am
N10sive wrote:
Wed Jun 27, 2018 10:58 am
This is probably one of the most common threads on here. This link is referenced in many of them

https://www.whitecoatinvestor.com/pay-o ... or-invest/

Its not just about interest rate though, you have to look at your complete financial picture: emergency savings, salary, job stability, debt amount, retirement savings etc.
In addition, you’ll be stuck with the student loan debt even in the event of bankruptcy. So getting rid of that should be a high priority.

Why a high priority? The 3-month T-bill rate is 1.93% and the interest rate on his student loan is 1.6%.
His wife’s rates are all well over 3%.

N10sive
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Re: What is your debt interest rate threshold?

Post by N10sive » Wed Jun 27, 2018 4:46 pm

delamer wrote:
Wed Jun 27, 2018 4:42 pm
triceratop wrote:
Wed Jun 27, 2018 3:35 pm
Why a high priority? The 3-month T-bill rate is 1.93% and the interest rate on his student loan is 1.6%.
His wife’s rates are all well over 3%.
His Wife has one over 5%. I would at least pay that one off. But again we really don't know much. Depending on their tax bracket they could get a lot of the interest written off, or its a large amount but they plan to get public loan forgiveness etc.

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Sandtrap
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Re: What is your debt interest rate threshold?

Post by Sandtrap » Wed Jun 27, 2018 5:05 pm

DW and I have always worked toward zero debt.
Old school.
j

smitcat
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Re: What is your debt interest rate threshold?

Post by smitcat » Wed Jun 27, 2018 5:20 pm

Hoosierdom wrote:
Wed Jun 27, 2018 12:40 pm
For me anything over 5 I would pay aggressively, anything under 3 I would definitely not worry about and in the middle it depends on a host of factors. Those are admittidly arbitrary numbers.
About the same for us.

KlangFool
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Re: What is your debt interest rate threshold?

Post by KlangFool » Wed Jun 27, 2018 5:23 pm

profet wrote:
Wed Jun 27, 2018 10:52 am
I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?
profet,

How much taxes are you willing to pay in order to pay down those debts?

20+%? 30+%? 40+%? Those are the bigger numbers that you need to worry about.

KlangFool

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grabiner
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Re: What is your debt interest rate threshold?

Post by grabiner » Wed Jun 27, 2018 10:47 pm

Equal to the after-tax interest rate on a low-risk investment of the same duration. The duration of a single payment is the time to that payment. Therefore, for paying down a loan, the duration is close to the term of the loan. For paying off a loan, or reducing the initial balance, the duration is less than half the term, as you eliminate payments in 1-120 months by paying off a 120-month loan and the later payments are of lower present value.

The reason for this equivalence is that it is break-even with no extra risk. If you sell a 10-year bond yielding 3% after tax, and use the money to eliminate the last payment on your 10-year mortgage at 3% after tax, you break even, as you could have instead held the bond and used it to make the payment.

The interest rate should also be adjusted for costs or benefits. If you would lose 5% of your investment to capital-gains tax for selling stock to pay down a 5-year loan, that increases the break-even interest rate on the loan by 1%. If you would gain 50% of your investment because you get a 401(k) match, it is almost certainly better to make that much of an investment in preference to paying down a loan.

One important exception is liquidity. If you pay down your home mortgage, you may not be able to re-borrow at the same rate if you need the money.

Discussion on the wiki:Paying down loans versus investing
Wiki David Grabiner

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grabiner
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Re: What is your debt interest rate threshold?

Post by grabiner » Wed Jun 27, 2018 10:50 pm

GAAP wrote:
Wed Jun 27, 2018 3:24 pm
Turning the question around, a loan is worth getting/keeping when the received value from the loan clearly exceeds the cost of the loan.

A mortgage probably qualifies to a degree -- but at some cost, it doesn't anymore.

Education should usually qualify, if the loan is not used to inflate college living standards.

A car loan might qualify if it is a requirement to get a better paycheck or reduces current expense sufficiently.

Payoff then becomes a cost/benefit analysis. The loan terms will matter. Prepayment penalties are one possible issue. The length (and therefore total cost) of the loan is another -- a 1.6% car loan due next month is different than one due in 8 years, etc.
This is the right way to look at things. Taking out a loan may be beneficial because it allows you to get something valuable (a home or a college degree) that you couldn't otherwise buy. But once you have taken out a loan, it is just money, and you should pay down the loan if paying it down is a better use of your money.

The distinction between taking out the loan and paying it down goes away if you are buying something you could have bought without the loan, it becomes an issue again of the best use of the money. I took out a loan to buy my home, even though I could have paid cash, because the cost of paying cash would have been higher; I would have had a huge capital gain.
Wiki David Grabiner

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Re: What is your debt interest rate threshold?

Post by Messy_Orchid_51 » Wed Jun 27, 2018 11:56 pm

profet wrote:
Wed Jun 27, 2018 10:52 am
I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?

As a starting point - when you can achieve a guaranteed return (FDIC insured etc) greater than the interest on the debt. Right? If your 12 month CD is paying 2.5% interest and your student loans with 12 months left are costing 1.6% why not invest in the CD? Of course, you have to take into account the taxes. If student loans earn you a deduction and interest on CD is taxed each year your numbers will change.

I think long term inflation is supposed to hover around 2% so anything less than that is probably good to hold on to. A 30 year mortgage can be a great hedge against inflation. Imagine if interest rates jump and you're holding a massive loan in the mortgage capped at 3.25% for the next 20+ years.

Betting on 10% stock market returns instead of paying down debt at lower rates would be a gamble.

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djpeteski
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Re: What is your debt interest rate threshold?

Post by djpeteski » Thu Jun 28, 2018 7:03 am

profet wrote:
Wed Jun 27, 2018 10:52 am
Student Loan @ 1.6%
In my opinion that debt is about 1.6% to high for my threshold. Playing the borrow and invest game, loses in long run.

Hoosierdom
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Re: What is your debt interest rate threshold?

Post by Hoosierdom » Thu Jun 28, 2018 8:38 am

I don't understand why this idea is so prevalent here. I'm not proficient enough with the various back testing programs to back up my impressions with data but looking at past returns seems to suggest that leveraged investing has been extremely profitable in the past.

mortfree
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Re: What is your debt interest rate threshold?

Post by mortfree » Thu Jun 28, 2018 8:45 am

those rates are "reasonable" except for DW's student loans.

what I would want to know is the loan amount for each and the duration.

then I might be able to formulate a plan.

Until then, I would say a little of each - debt pay down and investing.

LiterallyIronic
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Re: What is your debt interest rate threshold?

Post by LiterallyIronic » Thu Jun 28, 2018 9:20 am

MnD wrote:
Wed Jun 27, 2018 11:19 am
Imagine you had no debt. At what interest rate would you take on debt in order to invest.
That threshold should be the same answer as the threshold to pay off debt you have.
My threshold would probably be 1% if the debt wasn't a nuisance.
I consider things like auto titles being held by the bank and home loans with escrow accounts for taxes and insurance to be nuisances.
If I could get a nuisance-free 1% loan for a decent duration I'd do it and invest it.
See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.

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Re: What is your debt interest rate threshold?

Post by JGoneRiding » Thu Jun 28, 2018 9:29 am

Hoosierdom wrote:
Wed Jun 27, 2018 12:40 pm
For me anything over 5 I would pay aggressively, anything under 3 I would definitely not worry about and in the middle it depends on a host of factors. Those are admittidly arbitrary numbers.
I agree. Though when my mortgage was 5.875% ideas still investing some. I knew I needed time in the market. That same house the mortgage is now 3.875% and is last on the list of things to pay down

Debt rates : SL 4.75% this is target one but I do still put money into retirement accts and long term savings
Car loan 2. Is 3% something and will be target 2
Car loan 1 is 2.5% and will ride it's term
House 1 is 4.5%
House 2 is 3.875% as is house 3. I will eventually target these but not until everything else is totally full
House 4 was higher and is paid in full now

GAAP
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Re: What is your debt interest rate threshold?

Post by GAAP » Thu Jun 28, 2018 9:34 am

Hoosierdom wrote:
Wed Jun 27, 2018 12:40 pm
For me anything over 5 I would pay aggressively, anything under 3 I would definitely not worry about and in the middle it depends on a host of factors. Those are admittidly arbitrary numbers.
And my guess is that they are unconsciously tied to the inflation rate. In the current environment, those make a lot of sense. Double the inflation, not so much, cut inflation in half, they may move down.

grkmec
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Re: What is your debt interest rate threshold?

Post by grkmec » Thu Jun 28, 2018 12:36 pm

I look at my marginal after tax cost of debt vs. my after tax return potential. Let me give you a couple of examples:

Back in 2014, I refinance all my debt (primary residence and investment properties) to 1mL+110-125 bps. Back then 1m LIBOR was 15 bps. So my cost of debt was 1.5% (rounded up) and my after-tax cost of debt was 75 bps. At that rate, I borrowed millions (literally).

Now my cost of debt based upon LIBOR is 3.35%. But a marginal difference has emerged:

1) Primary residence is tax deductible against W2 income, so after tax cost of debt is ~1.7%. That is still cheap so not paying any of it down.

2) Investment properties now are in a tax loss position as rental income - opex - interest - depreciation < 0. As interest expense has risen, properties are now generating a tax loss which can't be utilized, only deferred. So my marginal cost of debt on my investment properties is 3.35% after tax. That is too much. So I am aggressively paying down the debt on my properties to manage to a zero taxable rental income level.

I also look at it another way. What is the after-tax return on a 50/50 balanced fund in a taxable account? I would argue that bonds can do 4% pre-tax and stocks can do 6%. Bonds taxed at 50%, stocks at 30% long term capital gains (for me). So blended after-tax return is 3.1%.

So my marginal hurdle rate is 3.1% after-tax return. If I can pay down debt at > 3.1% (non-deductible debt), then I will do that. Hence I am paying down investment property debt.

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Meg77
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Re: What is your debt interest rate threshold?

Post by Meg77 » Thu Jun 28, 2018 12:52 pm

It's all relative - primarily relative to the inflation rate and the rate of risk free investments (treasuries, bank CDs).

Inflation is running just over 2%, so any debt at that level or under is effectively free money. I don't worry about paying that off; after all my Vanguard money market is paying me over 2% now. [Example: my 0.90% car loan]

Relatively safe bonds are yielding over 3%, so I don't worry about paying off debt that is in that range [Example: my 2.75% mortgage]. I'd rather have the liquidity even if my return is equal or close to my debt cost.

Personally I'm also not prepaying my rental mortgages which are at 3-5.2% (2-3.5% after taxes). This isn't really because I think I can get better rates in the stock market though. After all, we are currently in the longest bull market in history. Long term stock returns should average more than 3-5%, but that doesn't mean it's wise to borrow at that level to invest in stocks. In the short term (specifically, during the term of the loan in question), it's perfectly likely that your stock investments fail to outpace your loan rate or even lose money.

No, I'm leaving those loans in place and hoarding cash because I'll probably want to aquire more real estate or a business in the future. If/when I do so, I know I'll be borrowing at higher rates than what I've got now. So paying off these loans now would feel good in the short term (and I could sell stocks and knock out the 5.125% mortgage today), but if I have to turn around next year and borrow at 6% to buy a different property, then I'm not exactly getting ahead.
"An investment in knowledge pays the best interest." - Benjamin Franklin

GodelianKnot
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Re: What is your debt interest rate threshold?

Post by GodelianKnot » Thu Jun 28, 2018 1:05 pm

djpeteski wrote:
Thu Jun 28, 2018 7:03 am
Playing the borrow and invest game, loses in long run.
Absolutely not true.

smitcat
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Re: What is your debt interest rate threshold?

Post by smitcat » Thu Jun 28, 2018 2:38 pm

LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am
MnD wrote:
Wed Jun 27, 2018 11:19 am
Imagine you had no debt. At what interest rate would you take on debt in order to invest.
That threshold should be the same answer as the threshold to pay off debt you have.
My threshold would probably be 1% if the debt wasn't a nuisance.
I consider things like auto titles being held by the bank and home loans with escrow accounts for taxes and insurance to be nuisances.
If I could get a nuisance-free 1% loan for a decent duration I'd do it and invest it.
See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.
"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?

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Pajamas
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Re: What is your debt interest rate threshold?

Post by Pajamas » Thu Jun 28, 2018 3:35 pm

profet wrote:
Wed Jun 27, 2018 10:52 am
I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?
Depends on the context but in that situation, I would probably pay off the 5.06% student loan but would borrow as much money as I could at 1.6 or 1.65% in order to invest. (I would also, and in fact do, borrow money at 3-4% to invest currently but can repay it at any time.)

The 4.4% and 4.41% loans, I wouldn't happy about but also would not be in a big hurry to pay off because financially that rate is basically neutral to me right now.

Of course factors such as your income, the amount of the debt and its relationship to your net worth and income, taxes, cash flow, investment options, other uses for the money, etc. are important in making the decision, as you acknowledged by mentioning opportunity cost. It's also generally not a good feeling to be in debt unless it is making you money so part of it is purely what makes you feel good.

FPS_dapdap
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Re: What is your debt interest rate threshold?

Post by FPS_dapdap » Thu Jun 28, 2018 3:47 pm

profet wrote:
Wed Jun 27, 2018 10:52 am
I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?
I see "DW" everywhere. What does it mean?

delamer
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Re: What is your debt interest rate threshold?

Post by delamer » Thu Jun 28, 2018 3:54 pm

FPS_dapdap wrote:
Thu Jun 28, 2018 3:47 pm
profet wrote:
Wed Jun 27, 2018 10:52 am
I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?
I see "DW" everywhere. What does it mean?
Dear Wife

FPS_dapdap
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Re: What is your debt interest rate threshold?

Post by FPS_dapdap » Thu Jun 28, 2018 3:55 pm

delamer wrote:
Thu Jun 28, 2018 3:54 pm
FPS_dapdap wrote:
Thu Jun 28, 2018 3:47 pm
profet wrote:
Wed Jun 27, 2018 10:52 am
I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?

I see "DW" everywhere. What does it mean?
Dear Wife
:oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops: :oops:

LiterallyIronic
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Re: What is your debt interest rate threshold?

Post by LiterallyIronic » Thu Jun 28, 2018 4:57 pm

smitcat wrote:
Thu Jun 28, 2018 2:38 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am
MnD wrote:
Wed Jun 27, 2018 11:19 am
Imagine you had no debt. At what interest rate would you take on debt in order to invest.
That threshold should be the same answer as the threshold to pay off debt you have.
My threshold would probably be 1% if the debt wasn't a nuisance.
I consider things like auto titles being held by the bank and home loans with escrow accounts for taxes and insurance to be nuisances.
If I could get a nuisance-free 1% loan for a decent duration I'd do it and invest it.
See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.
"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?
I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.

smitcat
Posts: 1877
Joined: Mon Nov 07, 2016 10:51 am

Re: What is your debt interest rate threshold?

Post by smitcat » Thu Jun 28, 2018 7:00 pm

LiterallyIronic wrote:
Thu Jun 28, 2018 4:57 pm
smitcat wrote:
Thu Jun 28, 2018 2:38 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am
MnD wrote:
Wed Jun 27, 2018 11:19 am
Imagine you had no debt. At what interest rate would you take on debt in order to invest.
That threshold should be the same answer as the threshold to pay off debt you have.
My threshold would probably be 1% if the debt wasn't a nuisance.
I consider things like auto titles being held by the bank and home loans with escrow accounts for taxes and insurance to be nuisances.
If I could get a nuisance-free 1% loan for a decent duration I'd do it and invest it.
See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.
"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?
I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.
OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.

michaeljc70
Posts: 3603
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Re: What is your debt interest rate threshold?

Post by michaeljc70 » Thu Jun 28, 2018 7:06 pm

smitcat wrote:
Thu Jun 28, 2018 7:00 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 4:57 pm
smitcat wrote:
Thu Jun 28, 2018 2:38 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am
MnD wrote:
Wed Jun 27, 2018 11:19 am
Imagine you had no debt. At what interest rate would you take on debt in order to invest.
That threshold should be the same answer as the threshold to pay off debt you have.
My threshold would probably be 1% if the debt wasn't a nuisance.
I consider things like auto titles being held by the bank and home loans with escrow accounts for taxes and insurance to be nuisances.
If I could get a nuisance-free 1% loan for a decent duration I'd do it and invest it.
See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.
"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?
I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.
OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.
How often is that going to happen? Banks don't make money lending out money at 1% and then paying 3% on a CD. The only way I really see this happening is if you've had the debt for a while (and it is a rising rate environment) or there's some kind of promotion like when buying a car.
Last edited by michaeljc70 on Thu Jun 28, 2018 7:09 pm, edited 1 time in total.

smitcat
Posts: 1877
Joined: Mon Nov 07, 2016 10:51 am

Re: What is your debt interest rate threshold?

Post by smitcat » Thu Jun 28, 2018 7:09 pm

michaeljc70 wrote:
Thu Jun 28, 2018 7:06 pm
smitcat wrote:
Thu Jun 28, 2018 7:00 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 4:57 pm
smitcat wrote:
Thu Jun 28, 2018 2:38 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am


See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.
"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?
I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.
OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.
How often is that going to happen? Banks don't make money lending out money at 1% and then paying 3% on a CD. The only way I really see this happening is if you've had the debt a long time or there's some kind of promotion like when buying a car.
Off the top of my head - my experience only...
School loan with my daughter - right now
Mortgage - 2 times in my lifetime
Car loans - twice in the past 5 years

pascal
Posts: 121
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Re: What is your debt interest rate threshold?

Post by pascal » Thu Jun 28, 2018 7:11 pm

I think this forum would be served well if we put up grabiner and Meg77's replies on a sticky that was titled "If you want to pay down your debt -read this first"
"Never underestimate the ability of a bad situation to get worse...rapidly." Ninegrams

User avatar
slayed
Posts: 263
Joined: Wed Feb 01, 2012 3:07 pm

Re: What is your debt interest rate threshold?

Post by slayed » Thu Jun 28, 2018 7:13 pm

I would not be in a hurry to pay off any debt with an interest rate that is less than the rate of inflation. Currently that is around 2.1%.

LiterallyIronic
Posts: 801
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Re: What is your debt interest rate threshold?

Post by LiterallyIronic » Fri Jun 29, 2018 9:07 am

smitcat wrote:
Thu Jun 28, 2018 7:00 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 4:57 pm
smitcat wrote:
Thu Jun 28, 2018 2:38 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am
MnD wrote:
Wed Jun 27, 2018 11:19 am
Imagine you had no debt. At what interest rate would you take on debt in order to invest.
That threshold should be the same answer as the threshold to pay off debt you have.
My threshold would probably be 1% if the debt wasn't a nuisance.
I consider things like auto titles being held by the bank and home loans with escrow accounts for taxes and insurance to be nuisances.
If I could get a nuisance-free 1% loan for a decent duration I'd do it and invest it.
See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.
"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?
I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.
OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.
Nope, I don't see what you're talking about. It's not the "spread", it's the interest-free. I would take the $100k loan at 0% for a 3% CD, but not a $100k loan at 1% for a 4% CD. I've only had my mortgage for eight months and I hate it so badly. It keeps me up at night thinking, "I owe $144,000" and "I paid $460 in interest this month." The exact same thing would happen with that $100k loan at 1%. I had never paid a cent in interest in my life before this mortgage and I'll never do it again after.

I feel like you're operating as if money is fungible and I operate as if it's not. The money for investing is the money for investing; the money for the mortgage is the money for the mortgage. I have to invest 25% of my gross income in order to retire when I want to. And I have to throw an extra $200/month at the mortgage in order to pay it off in the timeline I want to. That means that particular $200 is already designated for the mortgage and I don't get to put it into the investments even if I think it will return greater than the 3.875% interest on the mortgage. If I want to invest more, I sure can, but I can't take it from the money designated for mortgage - I have to take it from money without a designation.
Last edited by LiterallyIronic on Fri Jun 29, 2018 9:17 am, edited 1 time in total.

smitcat
Posts: 1877
Joined: Mon Nov 07, 2016 10:51 am

Re: What is your debt interest rate threshold?

Post by smitcat » Fri Jun 29, 2018 9:15 am

LiterallyIronic wrote:
Fri Jun 29, 2018 9:07 am
smitcat wrote:
Thu Jun 28, 2018 7:00 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 4:57 pm
smitcat wrote:
Thu Jun 28, 2018 2:38 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am


See, this is what's weird and confusing. If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it. Can't risk losing it and not being able to pay back the loan. Yet I invest while having a mortgage. Because I know I need to invest a certain amount per month to reach my retirement goal. So I invest that amount and then throw as much extra at the mortgage as I can. So I'm definitely investing money that could instead be going to the 3.875% mortgage, but I wouldn't take a 3.875% loan specifically to invest it.
"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?
I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.
OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.
Nope, I don't see what you're talking about. If I get a school loan, mortgage, or car loan, then I got the loan to pay for school, house, or car, and I absolutely would use that money to pay for school, house, or car, rather than invest it in stocks.

I feel like you're operating as if money is fungible and I operate as if it's not. The money for investing is the money for investing; the money for the mortgage is the money for the mortgage. I have to invest 25% of my gross income in order to retire when I want to. And I have to throw an extra $200/month at the mortgage in order to pay it off in the timeline I want to. That means that particular $200 is already designated for the mortgage and I don't get to put it into the investments even if I think it will return greater than the 3.875% interest on the mortgage. If I want to invest more, I sure can, but I can't take it from the money designated for mortgage - I have to take it from money without a designation.
Yes - money if fungible and decisions are best made on your entire financial position and not in isolation.
School loan was taken 5 years back / 0% due for almost another year / could & can pay it back at any time / but money is being made off of it each year/ by the time it is due it has yielded gains and pay it off or not.
Car loan - - can pay cash or take a loan at 0% (or .06% in one case) / advantage to 0% by far

Megs77 post as well as teh one before it descrbes this the best.

User avatar
White Coat Investor
Posts: 13443
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Location: Greatest Snow On Earth

Re: What is your debt interest rate threshold?

Post by White Coat Investor » Fri Jun 29, 2018 9:21 am

profet wrote:
Wed Jun 27, 2018 10:52 am
I'm in debt.

Mortgage @ 3.25%
Student Loan @ 1.6%
DW Student Loans @ 3.61%, 4.41%, 4.04%, and 5.06%
Car @ 1.65%


My question is... at what interest rate do people feel its more worthwhile to invest rather than pay down the debt? When does the opportunity cost outweigh the loan fee?
I don't have any of those debts. Most people would consider me financially successful. Take from that what you will.

At various points in my life, I would have kept debt up to 2-3% in order to invest preferentially. Beyond that, it always seemed like a pretty good investment to pay it down. At this point, it seems silly to try to arbitrage a car loan in order to make a little money. I mean, if you borrow at 1.65% and invest at 3% on $20K....how much more money is that per year? Not much. At a certain point, it's not worth the hassle and worsened cash flow.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

LiterallyIronic
Posts: 801
Joined: Sat Dec 05, 2015 10:36 am

Re: What is your debt interest rate threshold?

Post by LiterallyIronic » Fri Jun 29, 2018 9:22 am

smitcat wrote:
Fri Jun 29, 2018 9:15 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:07 am
smitcat wrote:
Thu Jun 28, 2018 7:00 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 4:57 pm
smitcat wrote:
Thu Jun 28, 2018 2:38 pm


"If I had no debt, I wouldn't take a loan at 0% in order to invest."

Are you saying that you would not take a loan like $100K for 0% and put it into a CD for 3%+?
I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.
OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.
Nope, I don't see what you're talking about. If I get a school loan, mortgage, or car loan, then I got the loan to pay for school, house, or car, and I absolutely would use that money to pay for school, house, or car, rather than invest it in stocks.

I feel like you're operating as if money is fungible and I operate as if it's not. The money for investing is the money for investing; the money for the mortgage is the money for the mortgage. I have to invest 25% of my gross income in order to retire when I want to. And I have to throw an extra $200/month at the mortgage in order to pay it off in the timeline I want to. That means that particular $200 is already designated for the mortgage and I don't get to put it into the investments even if I think it will return greater than the 3.875% interest on the mortgage. If I want to invest more, I sure can, but I can't take it from the money designated for mortgage - I have to take it from money without a designation.
Yes - money if fungible and decisions are best made on your entire financial position and not in isolation.
School loan was taken 5 years back / 0% due for almost another year / could & can pay it back at any time / but money is being made off of it each year/ by the time it is due it has yielded gains and pay it off or not.
Car loan - - can pay cash or take a loan at 0% (or .06% in one case) / advantage to 0% by far

Megs77 post as well as teh one before it descrbes this the best.
Nope, I'd pay for the car in cash rather than take the 0.06% loan, or even the 0% loan. I was just at Home Depot yesterday and I was talking to a guy about AC installation and he ballparked it at $3,000 to $5,000, "but they have two years free financing." If I were to get the AC installation, I'd swipe my credit card and pay for it in full on the day of installation and then watch my bank account like a hawk for the charge to post and then pay it off immediately. Owing people money, even if it's just the cost of a gallon of milk, and even if it's not accruing interest, keeps me up at night.

smitcat
Posts: 1877
Joined: Mon Nov 07, 2016 10:51 am

Re: What is your debt interest rate threshold?

Post by smitcat » Fri Jun 29, 2018 9:27 am

LiterallyIronic wrote:
Fri Jun 29, 2018 9:22 am
smitcat wrote:
Fri Jun 29, 2018 9:15 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:07 am
smitcat wrote:
Thu Jun 28, 2018 7:00 pm
LiterallyIronic wrote:
Thu Jun 28, 2018 4:57 pm


I don't consider putting money into a CD to be "investing" (just like I wouldn't consider putting money into my checking account to be "investing"), so, yes, I'd take a $100k loan at 0% in order to put it into a 3% CD. But I wouldn't take a $100k loan at 0% interest in order to put it into stocks, or even bonds. But give me a guaranteed interest rate in an FDIC-insured account, and I'll take that $100k 0% loan every day of the week.
OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.
Nope, I don't see what you're talking about. If I get a school loan, mortgage, or car loan, then I got the loan to pay for school, house, or car, and I absolutely would use that money to pay for school, house, or car, rather than invest it in stocks.

I feel like you're operating as if money is fungible and I operate as if it's not. The money for investing is the money for investing; the money for the mortgage is the money for the mortgage. I have to invest 25% of my gross income in order to retire when I want to. And I have to throw an extra $200/month at the mortgage in order to pay it off in the timeline I want to. That means that particular $200 is already designated for the mortgage and I don't get to put it into the investments even if I think it will return greater than the 3.875% interest on the mortgage. If I want to invest more, I sure can, but I can't take it from the money designated for mortgage - I have to take it from money without a designation.
Yes - money if fungible and decisions are best made on your entire financial position and not in isolation.
School loan was taken 5 years back / 0% due for almost another year / could & can pay it back at any time / but money is being made off of it each year/ by the time it is due it has yielded gains and pay it off or not.
Car loan - - can pay cash or take a loan at 0% (or .06% in one case) / advantage to 0% by far

Megs77 post as well as teh one before it descrbes this the best.
Nope, I'd pay for the car in cash rather than take the 0.06% loan, or even the 0% loan. I was just at Home Depot yesterday and I was talking to a guy about AC installation and he ballparked it at $3,000 to $5,000, "but they have two years free financing." If I were to get the AC installation, I'd swipe my credit card and pay for it in full on the day of installation and then watch my bank account like a hawk for the charge to post and then pay it off immediately. Owing people money, even if it's just the cost of a gallon of milk, and even if it's not accruing interest, keeps me up at night.
AOK - no one is forcing anyone to make money for doing almost nothing. Free air miles , credit card cash backs, making money by not paying back a low interest loan, paying down a mortgage before retirement accounts (in many cases) can all be 'free' money.

LiterallyIronic
Posts: 801
Joined: Sat Dec 05, 2015 10:36 am

Re: What is your debt interest rate threshold?

Post by LiterallyIronic » Fri Jun 29, 2018 9:41 am

smitcat wrote:
Fri Jun 29, 2018 9:27 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:22 am
smitcat wrote:
Fri Jun 29, 2018 9:15 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:07 am
smitcat wrote:
Thu Jun 28, 2018 7:00 pm


OK - so if you can get that same spread with a school loan, mortgage ,car loan business loan, etc or the like you could see how it works.
Nope, I don't see what you're talking about. If I get a school loan, mortgage, or car loan, then I got the loan to pay for school, house, or car, and I absolutely would use that money to pay for school, house, or car, rather than invest it in stocks.

I feel like you're operating as if money is fungible and I operate as if it's not. The money for investing is the money for investing; the money for the mortgage is the money for the mortgage. I have to invest 25% of my gross income in order to retire when I want to. And I have to throw an extra $200/month at the mortgage in order to pay it off in the timeline I want to. That means that particular $200 is already designated for the mortgage and I don't get to put it into the investments even if I think it will return greater than the 3.875% interest on the mortgage. If I want to invest more, I sure can, but I can't take it from the money designated for mortgage - I have to take it from money without a designation.
Yes - money if fungible and decisions are best made on your entire financial position and not in isolation.
School loan was taken 5 years back / 0% due for almost another year / could & can pay it back at any time / but money is being made off of it each year/ by the time it is due it has yielded gains and pay it off or not.
Car loan - - can pay cash or take a loan at 0% (or .06% in one case) / advantage to 0% by far

Megs77 post as well as teh one before it descrbes this the best.
Nope, I'd pay for the car in cash rather than take the 0.06% loan, or even the 0% loan. I was just at Home Depot yesterday and I was talking to a guy about AC installation and he ballparked it at $3,000 to $5,000, "but they have two years free financing." If I were to get the AC installation, I'd swipe my credit card and pay for it in full on the day of installation and then watch my bank account like a hawk for the charge to post and then pay it off immediately. Owing people money, even if it's just the cost of a gallon of milk, and even if it's not accruing interest, keeps me up at night.
AOK - no one is forcing anyone to make money for doing almost nothing. Free air miles , credit card cash backs, making money by not paying back a low interest loan, paying down a mortgage before retirement accounts (in many cases) can all be 'free' money.
Exactly. I'm not chasing yield in life. Churn credit cards? Too much work. Swipe my 1% cash back credit card and then transfer money? Usually too much work (I only use my credit card for multi-hundred dollar purchases). Heck, I didn't even ask for the 1% cash back - they added that to my card later without intervention from me. Move my money from a 0.01% brick-and-mortar savings account to a 1.6% online-only bank? Meh, too much work. I prefer the simple life over that convoluted mess.

smitcat
Posts: 1877
Joined: Mon Nov 07, 2016 10:51 am

Re: What is your debt interest rate threshold?

Post by smitcat » Fri Jun 29, 2018 10:49 am

LiterallyIronic wrote:
Fri Jun 29, 2018 9:41 am
smitcat wrote:
Fri Jun 29, 2018 9:27 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:22 am
smitcat wrote:
Fri Jun 29, 2018 9:15 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:07 am


Nope, I don't see what you're talking about. If I get a school loan, mortgage, or car loan, then I got the loan to pay for school, house, or car, and I absolutely would use that money to pay for school, house, or car, rather than invest it in stocks.

I feel like you're operating as if money is fungible and I operate as if it's not. The money for investing is the money for investing; the money for the mortgage is the money for the mortgage. I have to invest 25% of my gross income in order to retire when I want to. And I have to throw an extra $200/month at the mortgage in order to pay it off in the timeline I want to. That means that particular $200 is already designated for the mortgage and I don't get to put it into the investments even if I think it will return greater than the 3.875% interest on the mortgage. If I want to invest more, I sure can, but I can't take it from the money designated for mortgage - I have to take it from money without a designation.
Yes - money if fungible and decisions are best made on your entire financial position and not in isolation.
School loan was taken 5 years back / 0% due for almost another year / could & can pay it back at any time / but money is being made off of it each year/ by the time it is due it has yielded gains and pay it off or not.
Car loan - - can pay cash or take a loan at 0% (or .06% in one case) / advantage to 0% by far

Megs77 post as well as teh one before it descrbes this the best.
Nope, I'd pay for the car in cash rather than take the 0.06% loan, or even the 0% loan. I was just at Home Depot yesterday and I was talking to a guy about AC installation and he ballparked it at $3,000 to $5,000, "but they have two years free financing." If I were to get the AC installation, I'd swipe my credit card and pay for it in full on the day of installation and then watch my bank account like a hawk for the charge to post and then pay it off immediately. Owing people money, even if it's just the cost of a gallon of milk, and even if it's not accruing interest, keeps me up at night.
AOK - no one is forcing anyone to make money for doing almost nothing. Free air miles , credit card cash backs, making money by not paying back a low interest loan, paying down a mortgage before retirement accounts (in many cases) can all be 'free' money.
Exactly. I'm not chasing yield in life. Churn credit cards? Too much work. Swipe my 1% cash back credit card and then transfer money? Usually too much work (I only use my credit card for multi-hundred dollar purchases). Heck, I didn't even ask for the 1% cash back - they added that to my card later without intervention from me. Move my money from a 0.01% brick-and-mortar savings account to a 1.6% online-only bank? Meh, too much work. I prefer the simple life over that convoluted mess.
I don't sell credit cards nor do I make any money or represent lenders - I am just answering posts where I may be able to help someone else like many other Bogles have helped me.
We have already taken 7 day vacations for 3 people this year and will likely take one more all financed with these types of earnings.
Last year it was 7 trips of 7-10 days but we did use our business cards and financing deals for most of those.
So posting this may not be worth it in your case but it certainly will be for some others with differing situations and conditions.

LiterallyIronic
Posts: 801
Joined: Sat Dec 05, 2015 10:36 am

Re: What is your debt interest rate threshold?

Post by LiterallyIronic » Fri Jun 29, 2018 11:10 am

smitcat wrote:
Fri Jun 29, 2018 10:49 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:41 am
smitcat wrote:
Fri Jun 29, 2018 9:27 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:22 am
smitcat wrote:
Fri Jun 29, 2018 9:15 am


Yes - money if fungible and decisions are best made on your entire financial position and not in isolation.
School loan was taken 5 years back / 0% due for almost another year / could & can pay it back at any time / but money is being made off of it each year/ by the time it is due it has yielded gains and pay it off or not.
Car loan - - can pay cash or take a loan at 0% (or .06% in one case) / advantage to 0% by far

Megs77 post as well as teh one before it descrbes this the best.
Nope, I'd pay for the car in cash rather than take the 0.06% loan, or even the 0% loan. I was just at Home Depot yesterday and I was talking to a guy about AC installation and he ballparked it at $3,000 to $5,000, "but they have two years free financing." If I were to get the AC installation, I'd swipe my credit card and pay for it in full on the day of installation and then watch my bank account like a hawk for the charge to post and then pay it off immediately. Owing people money, even if it's just the cost of a gallon of milk, and even if it's not accruing interest, keeps me up at night.
AOK - no one is forcing anyone to make money for doing almost nothing. Free air miles , credit card cash backs, making money by not paying back a low interest loan, paying down a mortgage before retirement accounts (in many cases) can all be 'free' money.
Exactly. I'm not chasing yield in life. Churn credit cards? Too much work. Swipe my 1% cash back credit card and then transfer money? Usually too much work (I only use my credit card for multi-hundred dollar purchases). Heck, I didn't even ask for the 1% cash back - they added that to my card later without intervention from me. Move my money from a 0.01% brick-and-mortar savings account to a 1.6% online-only bank? Meh, too much work. I prefer the simple life over that convoluted mess.
I don't sell credit cards nor do I make any money or represent lenders - I am just answering posts where I may be able to help someone else like many other Bogles have helped me.
We have already taken 7 day vacations for 3 people this year and will likely take one more all financed with these types of earnings.
Last year it was 7 trips of 7-10 days but we did use our business cards and financing deals for most of those.
So posting this may not be worth it in your case but it certainly will be for some others with differing situations and conditions.
I don't doubt that it is useful information for some (most?) people. I understand the math - I just don't care about it. More importantly, how do you have the vacation days at work to go on all those trips? I take about December 20 - December 31 off every year (but that includes weekends and two company holidays (Christmas Eve and Christmas)); I've taken one sick day in the 2.5 years I've worked here (and it was a fake sick day because I had to pick someone up from the airport); and I took two days off work when my baby was born. If you're going on seven vacations every year, I'm in the wrong line of work.

smitcat
Posts: 1877
Joined: Mon Nov 07, 2016 10:51 am

Re: What is your debt interest rate threshold?

Post by smitcat » Fri Jun 29, 2018 11:22 am

LiterallyIronic wrote:
Fri Jun 29, 2018 11:10 am
smitcat wrote:
Fri Jun 29, 2018 10:49 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:41 am
smitcat wrote:
Fri Jun 29, 2018 9:27 am
LiterallyIronic wrote:
Fri Jun 29, 2018 9:22 am


Nope, I'd pay for the car in cash rather than take the 0.06% loan, or even the 0% loan. I was just at Home Depot yesterday and I was talking to a guy about AC installation and he ballparked it at $3,000 to $5,000, "but they have two years free financing." If I were to get the AC installation, I'd swipe my credit card and pay for it in full on the day of installation and then watch my bank account like a hawk for the charge to post and then pay it off immediately. Owing people money, even if it's just the cost of a gallon of milk, and even if it's not accruing interest, keeps me up at night.
AOK - no one is forcing anyone to make money for doing almost nothing. Free air miles , credit card cash backs, making money by not paying back a low interest loan, paying down a mortgage before retirement accounts (in many cases) can all be 'free' money.
Exactly. I'm not chasing yield in life. Churn credit cards? Too much work. Swipe my 1% cash back credit card and then transfer money? Usually too much work (I only use my credit card for multi-hundred dollar purchases). Heck, I didn't even ask for the 1% cash back - they added that to my card later without intervention from me. Move my money from a 0.01% brick-and-mortar savings account to a 1.6% online-only bank? Meh, too much work. I prefer the simple life over that convoluted mess.
I don't sell credit cards nor do I make any money or represent lenders - I am just answering posts where I may be able to help someone else like many other Bogles have helped me.
We have already taken 7 day vacations for 3 people this year and will likely take one more all financed with these types of earnings.
Last year it was 7 trips of 7-10 days but we did use our business cards and financing deals for most of those.
So posting this may not be worth it in your case but it certainly will be for some others with differing situations and conditions.
I don't doubt that it is useful information for some (most?) people. I understand the math - I just don't care about it. More importantly, how do you have the vacation days at work to go on all those trips? I take about December 20 - December 31 off every year (but that includes weekends and two company holidays (Christmas Eve and Christmas)); I've taken one sick day in the 2.5 years I've worked here (and it was a fake sick day because I had to pick someone up from the airport); and I took two days off work when my baby was born. If you're going on seven vacations every year, I'm in the wrong line of work.
I did not intend the focus of the post to cover vacation days as you can utilize these financial benifits in other ways other than just vacations - just that we used them for vacations these past years.
To answer your question - "how do you have the vacation days at work to go on all those trips?" We own our own business's so I just ask the boss (my wife) when we can take off.
Not that it is important but when I was in corporate america I went 17 years without a sick day - file that under useless facts.

goblue100
Posts: 672
Joined: Sun Dec 01, 2013 10:31 am

Re: What is your debt interest rate threshold?

Post by goblue100 » Fri Jun 29, 2018 11:33 am

LiterallyIronic wrote:
Thu Jun 28, 2018 9:20 am

If I had no debt, I wouldn't take a loan at 0% in order to invest. There is no circumstance where I would borrow money for the purpose of investing it.
I'll borrow all the 0% money I can get. FDIC insured CD's are easily available at ~2.4% for 12 months.
Can't take it with you when you're gone | But I want enough to get there on - Rollin with the flow - Jerry Hayes

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