paying for big purchases? cash or debt?

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unknownENG
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paying for big purchases? cash or debt?

Post by unknownENG »

so looking for advice here. I feel like I've set up a lot of the building blocks and potential ways to pay for big purchases, but not sure what to exactly do.

Looking for advice or tips for ways to pay for big purchases ($5k-$10k+) like a used car or home reno projects that will make the most sense for frugal and fiscally-savy people like ourselves.

Should I just write cash checks or setup a margin loan and play the interest arbitrage? Any advice here?

Background:
- good paying job
- no debt except for mortgage. CC's paid in full every month.
- large cash reserve (was waiting for the ever-predicted crash)
- large 401k and IRA accounts, ROTH and regular (can take loans against for short term, right?)
- large HELOC account, available at 3.25%
- large WholeLife cash value (able to take loans, direct recognition)
- large post-tax investment accounts (can do margin loans)
Mike Scott
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Re: paying for big purchases? cash or debt?

Post by Mike Scott »

I would get a new credit card for the sign up bonus whenever possible and pay it off with cash flow. At the very least, use a 2% card for anything that you can.
DoubleComma
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Re: paying for big purchases? cash or debt?

Post by DoubleComma »

There is no right answer to this.

I use cash for these types of purchases. The leverage you get by keeping cash invested and taking on debt isn’t attractive to me. I’m not concerned about having enough money at retirement or another point in time to want additional debt service.

Others prefer debt and keeping their cash invested. They have their own reasons for that.

You get to pick what you prefer.
Kagord
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Re: paying for big purchases? cash or debt?

Post by Kagord »

I absolutely loathe owing anybody anything. It may not be the prudent thing, but it makes me content, so there.
mikejuss
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Re: paying for big purchases? cash or debt?

Post by mikejuss »

A key question: what's the interest rate on whatever debt you're proposing to take on? To my own taste, if it's above 3% (excepting maybe for a mortgage), I would do everything I could to pay cash. If it's below 3%, I would at least think about it.
diydocwifejd
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Re: paying for big purchases? cash or debt?

Post by diydocwifejd »

DoubleComma wrote: Wed Oct 13, 2021 2:08 pm There is no right answer to this.

I use cash for these types of purchases. The leverage you get by keeping cash invested and taking on debt isn’t attractive to me. I’m not concerned about having enough money at retirement or another point in time to want additional debt service.

Others prefer debt and keeping their cash invested. They have their own reasons for that.

You get to pick what you prefer.

This, however, IS the right answer :wink:
bloom2708
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Re: paying for big purchases? cash or debt?

Post by bloom2708 »

I charge big purchases when allowed. Even college tuition as one university allows it. Harvest the CC rewards.

Wait for the transaction to clear and then pay it off with cash.

I would not mess around with margin and loans for $5k to $10k stuff.
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Californiastate
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Re: paying for big purchases? cash or debt?

Post by Californiastate »

Cash back CC's paid off each month. Preferred status pumps up your rewards. I can't recall the last time I used cash or written a check. I'm not Ivan Boesky.
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Sandtrap
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Re: paying for big purchases? cash or debt?

Post by Sandtrap »

We’ve done everything in increments. Such as:
Home improvement and renovation 300k paid in cash 1/3 each stage.
New warehouse at 110k in cash when we saved up enough.
Everything all cash. No loans.

This is a very individual thing based on resources etc.
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tashnewbie
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Re: paying for big purchases? cash or debt?

Post by tashnewbie »

For $5k to $10k, I agree with another poster that it's probably not enough "juice" to bother with margin loans etc.

I'd try to keep it as simple as reasonably possible.

For something in that range, if it was a planned expense, I would just save cash over a period of time.

If it was an unplanned expense, then I would just use credit card float and pay off the CC bill in full. Sounds like you have sufficient cash reserves to do that.
tashnewbie
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Re: paying for big purchases? cash or debt?

Post by tashnewbie »

unknownENG wrote: Wed Oct 13, 2021 1:36 pm - large cash reserve (was waiting for the ever-predicted crash)
May want to address this, too.

Are you still on the "sidelines?"

Have you reevaluated how much cash you want to hold and decided this larger amount is what you want?
fyre4ce
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Re: paying for big purchases? cash or debt?

Post by fyre4ce »

Save up and pay cash, for everything except for a house and/or an education. Risk-free investments these days are paying 0.5%. Not worth the hassle, and borrowing for consumption promotes bad spending habits.
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birdog
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Re: paying for big purchases? cash or debt?

Post by birdog »

I use credit cards for everything that I can in order to get the thousands of dollars per year that the benefits (cash back and travel rewards) provide. Merchants set prices to account for the credit card fees that they have to pay so if you write a check for something that you could have used a good rewards credit card for then you are actually paying more for that item.

If I’m buying a big ticket item like a car or a house, it all depends on the interest rate. I hate debt but today’s low interest rates make it somewhat compelling to me to finance.
hudson
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Re: paying for big purchases? cash or debt?

Post by hudson »

unknownENG wrote: Wed Oct 13, 2021 1:36 pm so looking for advice here. I feel like I've set up a lot of the building blocks and potential ways to pay for big purchases, but not sure what to exactly do.

Looking for advice or tips for ways to pay for big purchases ($5k-$10k+) like a used car or home reno projects that will make the most sense for frugal and fiscally-savy people like ourselves.

Should I just write cash checks or setup a margin loan and play the interest arbitrage? Any advice here?

Background:
- good paying job
- no debt except for mortgage. CC's paid in full every month.
- large cash reserve (was waiting for the ever-predicted crash)
- large 401k and IRA accounts, ROTH and regular (can take loans against for short term, right?)
- large HELOC account, available at 3.25%
- large WholeLife cash value (able to take loans, direct recognition)
- large post-tax investment accounts (can do margin loans)
Advice large purchases: I vote to continue no debt. Monthly payments are a pain. I like keeping everything current. No debt is sweet. Even no interest loans give me heartburn; I think, "Why not just pay the whole bill and get it done?"

Heloc: As soon as I paid my heloc off, I requested that the heloc be cancelled. I wanted it to be un-useable. It took two or three calls before it was done. A friend's wife walked out on him, went to the bank, emptied the heloc and hit the road; that left him holding the bag.

Margin Loans: heartburn

Cash Reserves: My taxable account is my emergency fund; I do keep a problem solving fund (.5% savings account) that would take care of most large purchases...$5-10K.

Whole Life Insurance: Whole life gives me heartburn; the advantage goes to the seller. Term life is optimal.
Last edited by hudson on Thu Oct 14, 2021 7:03 am, edited 2 times in total.
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Cheez-It Guy
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Re: paying for big purchases? cash or debt?

Post by Cheez-It Guy »

If it can go on a credit card that I can earn rewards on and pay in full each month with no interest charges, then I don't even consider that debt. Otherwise cash. As someone else said, I loathe owing anything. For me, the mental health benefits of being truly debt-free outweigh the supposed benefits of using debt to keep more invested. I don't spend much anyway, so any benefits would be quite marginal.
z3r0c00l
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Re: paying for big purchases? cash or debt?

Post by z3r0c00l »

Anything in the 1,000+ range I will look for a new credit card with a $150+ bonus. Takes 15-20 minutes per card per year and a few cards per year, maybe with a bonus bank account, and you can make some decent money.
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RobLyons
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Re: paying for big purchases? cash or debt?

Post by RobLyons »

I would pay with credit if under 4%. Bonus advice I would invest that extra money, you're trying to time the market which hasn't worked out well for you yet.
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bltn
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Re: paying for big purchases? cash or debt?

Post by bltn »

Due to an expensive problem with my current car, I m about to buy a new car today. The dealership has tried to talk me into financing for a 1000 dollar reduction in the purchase price, contingent on me making 5 payments. At the rates they ve suggested, I pay almost 800 dollars in interest in those first five payments. And break my record of never having made a car payment in my life. I ve always put aside money in the future for the next car purchase.

I think I ll pass on the financing.

By the way, I m getting a terrible deal on the car, but I m buying it because of availability.
Last edited by bltn on Thu Oct 14, 2021 8:11 am, edited 1 time in total.
KlangFool
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Re: paying for big purchases? cash or debt?

Post by KlangFool »

OP,

CASH except in the case that I am paid to take the debt.

I took a car loan and pay off in less than one month because I received $500 discount. I paid less than $15 in loan interest for that $500 discount.

KlangFool
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bltn
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Re: paying for big purchases? cash or debt?

Post by bltn »

KlangFool wrote: Thu Oct 14, 2021 8:10 am OP,

CASH except in the case that I am paid to take the debt.

I took a car loan and pay off in less than one month because I received $500 discount. I paid less than $15 in loan interest for that $500 discount.

KlangFool
Paying only $15 in interest on your first car payment must have involved a pretty small loan.
KlangFool
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Re: paying for big purchases? cash or debt?

Post by KlangFool »

bltn wrote: Thu Oct 14, 2021 8:14 am
KlangFool wrote: Thu Oct 14, 2021 8:10 am OP,

CASH except in the case that I am paid to take the debt.

I took a car loan and pay off in less than one month because I received $500 discount. I paid less than $15 in loan interest for that $500 discount.

KlangFool
Paying only $15 in interest on your first car payment must have involved a pretty small loan.
$7,500 car loan at 1.9%. The loan was paid off before the first car payment due date.

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JoMoney
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Re: paying for big purchases? cash or debt?

Post by JoMoney »

If you're doing your own home renovations, I know someone that was able to get a part time home improvement store job (only worked a couple weekends for a few hours each month) and got an employee discount on everything they were buying, coupled with a store-branded credit card that got them an additional 5% off all purchases.

FWIW, I don't like carrying any debt. I don't like the idea of paying even a small amount of interest. I've been in the habit of trying to game credit card bonuses and cash-back rewards, but I'm starting to rethink that after reflecting on some purchases I've been doing that were less than something I really needed and more influenced by playing the credit card reward game. If you're paying off the money each month, it seems hard to give up "free" perks like cash-back rewards, but I do think there are some behavioral issues at work here, especially with regard to how I feel and need to budget when I'm spending a certain amount of cash in my pocket relative to just loading up a card that I know I'll cover whatever the balance is. Even using a debit card, where I know I need to manage the amount of cash available in the account makes me feel the spending differently, and requires a focus on budgeting the money available in the account that it just doesn't have when I'm buying on a credit card (that I only account for when I get the statement sometime later in the month.)
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cabfranc
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Re: paying for big purchases? cash or debt?

Post by cabfranc »

I recently purchased a $7000 John Deere lawn mower. They were offering 36 months zero interest financing. As far as I could tell the dealer would not give a better price for cash. I paid cash. DW thought I was nuts. I really don't want to be bothered with making a lawnmower payment for 36 months. Generally, I don't like to owe people money.

However, another perspective is the opportunity cost of holding cash for large expenses the timing of which is uncertain. For example, I have had a $30K car replacement fund in cash since my current car was 10 years old. It is now 15 years old and still running and I am trying to get it to go a little longer because of the crazy car prices. If I had just planned to take a loan and invested the cash, I would have been better off. Probably would have been better off even if I had withdrawn from taxable and paid short term capital gains. But I just like knowing I have the cash and am not subject to loan terms, interest rates, etc.
Marylander1
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Re: paying for big purchases? cash or debt?

Post by Marylander1 »

bltn wrote: Thu Oct 14, 2021 8:07 am Due to an expensive problem with my current car, I m about to buy a new car today. The dealership has tried to talk me into financing for a 1000 dollar reduction in the purchase price, contingent on me making 5 payments. At the rates they ve suggested, I pay almost 800 dollars in interest in those first five payments. And break my record of never having made a car payment in my life. I ve always put aside money in the future for the next car purchase.

I think I ll pass on the financing.
Can your first payment be hugely increased to perhaps 90% of the total loan? If so, your interest would drop dramatically and you could still make 5 payments. When I talked to a dealer, this seemed ok (although I ended up with a 0% loan so it didn't matter).

Marylander1
MrJedi
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Re: paying for big purchases? cash or debt?

Post by MrJedi »

I just pay it and then use future cash flow to recover my cash allocation.

I like the CC bonus suggestion. Some of the nicer bonuses will give you $500-1000 but requires like $4000-5000 spending. If you can charge you will meet the spending requirement with one swipe, then you can pay it off and pocket the bonus. Immediate 10-20% return vs. trying to play this leverage game and gamble. I suppose you could do both, but I don't like the leverage over a short timeline.
bltn
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Re: paying for big purchases? cash or debt?

Post by bltn »

Marylander1 wrote: Thu Oct 14, 2021 9:47 am
bltn wrote: Thu Oct 14, 2021 8:07 am Due to an expensive problem with my current car, I m about to buy a new car today. The dealership has tried to talk me into financing for a 1000 dollar reduction in the purchase price, contingent on me making 5 payments. At the rates they ve suggested, I pay almost 800 dollars in interest in those first five payments. And break my record of never having made a car payment in my life. I ve always put aside money in the future for the next car purchase.

I think I ll pass on the financing.
Can your first payment be hugely increased to perhaps 90% of the total loan? If so, your interest would drop dramatically and you could still make 5 payments. When I talked to a dealer, this seemed ok (although I ended up with a 0% loan so it didn't matter).

Marylander1
Actually that s what I found out from the general manager. I m going to pay 95% on my first payment and make small payments in the next 4 months to complete the purchase.
SQRT
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Re: paying for big purchases? cash or debt?

Post by SQRT »

As a 15 year retiree (71) I would never consider debt for these (or any other) type of purchase. Even if you are still working, I think it is best to pay cash for most discretionary purchases. Exceptions might include zero interest or very low interest loans. Even then, personally I wouldn’t bother. Too much hassle for me.
Ron Ronnerson
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Re: paying for big purchases? cash or debt?

Post by Ron Ronnerson »

I’ll go against the grain and say interest rate arbitrage through carrying debt is worth considering.

There are some credit cards that will give you a small bonus such as $200 for opening the account and meeting the minimum spending requirement and an introductory offer of no interest for 15-18 months and you’ll also earn 2% (or thereabouts) on all purchase transactions.

Let’s say you get such a credit card and charge $10k on it right away and then make minimum payments on it until 18 months later, at which point you pay it off in full. Let’s say inflation stays at the current rate of 5.3% through that entire period (this is a big assumption as it could, of course, be lower or higher).

This is what you would earn:
$200 bonus from meeting the minimum spending
$200 from 2% cash back on the transactions
$800 from inflation
Total: $1200 on $10k over 18 months. During the time, that’s an 8% guaranteed return (annualized) but it’s on a relatively small amount. Only you can decide whether this is worth the trouble.

There are risks involved. Maxing a credit line can adversely affect your credit score. Miss payments and you’re in more trouble on that front. Need a loan for something (such as mortgage refi), and the small benefit you get from the credit card is more than offset by getting worse terms on a much larger loan.

I did a cash-out refi earlier this year and took out $150k at 2.375% for 30 years. I am thinking of taking out credit card loans to take advantage of interest rate arbitrage as well while inflation runs higher than the recent past. I’m personally pro-low-interest debt.

You need to know yourself. I’m calculative and the math beats emotions for me. For example, I’m willing to go into debt if that’s what the math commands. Not everyone is this way and that’s okay.

Additionally, a couple of things in your post made me raise an eyebrow. You said you have had a large amount of cash on the sidelines in anticipation of a crash. Not only has that not materialized, but the market has boomed over the last few years. Your really should reflect on what this tells you. Also, are you prepared for the crash to happen right after you invest the money? You need to be ready for that. Also, do you have a good reason for having whole life insurance?
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bhwabeck3533
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Re: paying for big purchases? cash or debt?

Post by bhwabeck3533 »

Ron Ronnerson wrote: Sun Oct 17, 2021 10:24 am I’ll go against the grain and say interest rate arbitrage through carrying debt is worth considering.

I did a cash-out refi earlier this year and took out $150k at 2.375% for 30 years. I am thinking of taking out credit card loans to take advantage of interest rate arbitrage as well while inflation runs higher than the recent past. I’m personally pro-low-interest debt.
Ron, you got a great rate on your re-fi. I am about to close on a cash-out refinance and will be paying 2.9% (original loan was 4.1% in 2017). I'll use $80K from the re-fi and the remainder from my IRA to buy a used Class B Airstream Interstate (budget is $125K). I intend to pull half of the $45K from IRA in 2021 and other half in 2022 to reduce money given to the IRS.
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ApeAttack
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Re: paying for big purchases? cash or debt?

Post by ApeAttack »

Cheez-It Guy wrote: Thu Oct 14, 2021 6:33 am If it can go on a credit card that I can earn rewards on and pay in full each month with no interest charges, then I don't even consider that debt. Otherwise cash. As someone else said, I loathe owing anything. For me, the mental health benefits of being truly debt-free outweigh the supposed benefits of using debt to keep more invested. I don't spend much anyway, so any benefits would be quite marginal.
+1

I only consider debt to be something I can't pay off immediately if I wanted to. My mortgage is debt, but a 2k credit card bill that I will pay off before the due date is not.
Just another lazy index investor who recently found out about I-Bonds (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
bugleheadd
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Re: paying for big purchases? cash or debt?

Post by bugleheadd »

for a home reno, which was almost 100k, i paid cash. i didnt mind though because it was only about 10% of my portfolio and id rather not have any loans
pizzy
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Re: paying for big purchases? cash or debt?

Post by pizzy »

ApeAttack wrote: Mon Oct 18, 2021 8:05 am
Cheez-It Guy wrote: Thu Oct 14, 2021 6:33 am If it can go on a credit card that I can earn rewards on and pay in full each month with no interest charges, then I don't even consider that debt. Otherwise cash. As someone else said, I loathe owing anything. For me, the mental health benefits of being truly debt-free outweigh the supposed benefits of using debt to keep more invested. I don't spend much anyway, so any benefits would be quite marginal.
+1

I only consider debt to be something I can't pay off immediately if I wanted to. My mortgage is debt, but a 2k credit card bill that I will pay off before the due date is not.
If your taxable account net of any capital gains tax is larger than your mortgage balance.... is your mortgage no longer debt?
Ron Ronnerson
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Re: paying for big purchases? cash or debt?

Post by Ron Ronnerson »

bhwabeck3533 wrote: Mon Oct 18, 2021 6:12 am
Ron Ronnerson wrote: Sun Oct 17, 2021 10:24 am I’ll go against the grain and say interest rate arbitrage through carrying debt is worth considering.

I did a cash-out refi earlier this year and took out $150k at 2.375% for 30 years. I am thinking of taking out credit card loans to take advantage of interest rate arbitrage as well while inflation runs higher than the recent past. I’m personally pro-low-interest debt.
Ron, you got a great rate on your re-fi. I am about to close on a cash-out refinance and will be paying 2.9% (original loan was 4.1% in 2017). I'll use $80K from the re-fi and the remainder from my IRA to buy a used Class B Airstream Interstate (budget is $125K). I intend to pull half of the $45K from IRA in 2021 and other half in 2022 to reduce money given to the IRS.
Thanks, yes, we got lucky on the timing of the refinancing. We locked in November 2020 and closed in January 2021 and had multiple quotes for a 30-year cash-out refi with no escrow account at no cost for 2.375%. I mention the no escrow account because I put my two property tax payments on new credit cards each year and earn bonuses. It effectively lowers the bill by $1k or more per year. I’ve done this for the past several years. I’m thinking of carrying the debt on a no-interest credit card for 18 months now because we seem to be at a point where inflation might yield a bigger benefit than a bonus from a travel credit card.

I went from a 5.25% mortgage rate in 2010 to 3.25% in 2012, then 2.875% in 2020, and 2.375% in 2021 (when I also took cash out). I owe more on the home today than I did when I purchased it 11 years ago and still have almost 30 years of payments left. At these rates, I’m fine with that.

To me, debt isn’t good or bad. It is a tool. When I bonds are offering 7% and inflation is running above 5%, a 2.x% loan (or less) can essentially be a source of income if you can learn to accept the debt. I do wonder if the anti-debt crowd might feel differently about their low-interest loans if inflation gets higher (say, to double digits).

Anyhow, enjoy the Airstream Interstate. Sounds like fun times ahead!
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ApeAttack
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Re: paying for big purchases? cash or debt?

Post by ApeAttack »

pizzy wrote: Mon Oct 18, 2021 8:52 am
ApeAttack wrote: Mon Oct 18, 2021 8:05 am
Cheez-It Guy wrote: Thu Oct 14, 2021 6:33 am If it can go on a credit card that I can earn rewards on and pay in full each month with no interest charges, then I don't even consider that debt. Otherwise cash. As someone else said, I loathe owing anything. For me, the mental health benefits of being truly debt-free outweigh the supposed benefits of using debt to keep more invested. I don't spend much anyway, so any benefits would be quite marginal.
+1

I only consider debt to be something I can't pay off immediately if I wanted to. My mortgage is debt, but a 2k credit card bill that I will pay off before the due date is not.
If your taxable account net of any capital gains tax is larger than your mortgage balance.... is your mortgage no longer debt?
Hmmm... I never had to think about that before as I don't have a taxable account.

I suppose it is how you decide to do the mental accounting. If a taxable account is mostly for retirement investing and emergencies, then it isn't mentally available for paying off a mortgage.

If I had a 430k windfall, which is enough to pay off my mortgage, I'd have to think carefully about whether to do so immediately, mentally block it off for retirement purposes, or some combination of both.

Regardless, at the moment I can pay a 2k credit card bill immediately, but not a 430k mortgage.
Just another lazy index investor who recently found out about I-Bonds (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
pizzy
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Re: paying for big purchases? cash or debt?

Post by pizzy »

ApeAttack wrote: Mon Oct 18, 2021 9:27 am Regardless, at the moment I can pay a 2k credit card bill immediately, but not a 430k mortgage.
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Retired Bill
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Re: paying for big purchases? cash or debt?

Post by Retired Bill »

For a $5000 or $10000 personal expenditure I just save up in advance and pay cash at time of purchase. Other than the first automobile purchase for $3500 I have always paid cash for vehicles. New roof, siding, replacement windows always paid cash at time done too. I have investment accounts designated for these short-term to intermediate term goals/desires in additional to the emergency fund.
Carguy85
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Re: paying for big purchases? cash or debt?

Post by Carguy85 »

Cash...and then munis for me(in taxable). Friction and risk. “0 percent” or being rewarded to spend on a credit card (or as some would call it a “not really credit” card) is like an iced over road with water on top with regards to friction. All ok until it isn’t. Some of the justifications on here offer some comedy. Anyhow OP, this type of thread will not really provide a clear answer given the opinions on debt vary so wildly even in a forum where investing views are somewhat similar. Whatever makes sense to you...go for it. The psychology behind the above mentioned things is very real although it apparently doesn’t really apply to some on here. They are getting one over on the financial institutions. I’m not that sophisticated. A 15 year 20% down mortgage sure....anything over that make sure you are sophisticated enough not to fall into a trap :D . As you actually own more of your stuff(not the bank) you will find it easier to pay cash... I remember the days of thinking how bizarre and impossible it seemed to pay cash for a new car.
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ApeAttack
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Re: paying for big purchases? cash or debt?

Post by ApeAttack »

KlangFool wrote: Thu Oct 14, 2021 8:15 am
bltn wrote: Thu Oct 14, 2021 8:14 am
KlangFool wrote: Thu Oct 14, 2021 8:10 am OP,

CASH except in the case that I am paid to take the debt.

I took a car loan and pay off in less than one month because I received $500 discount. I paid less than $15 in loan interest for that $500 discount.

KlangFool
Paying only $15 in interest on your first car payment must have involved a pretty small loan.
$7,500 car loan at 1.9%. The loan was paid off before the first car payment due date.

KlangFool
I saved several thousand on a car purchase this way. Took a 5% loan with no prepayment penalty... paid off the entire loan a couple days later.
Just another lazy index investor who recently found out about I-Bonds (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
Katietsu
Posts: 5340
Joined: Sun Sep 22, 2013 1:48 am

Re: paying for big purchases? cash or debt?

Post by Katietsu »

bltn wrote: Thu Oct 14, 2021 8:07 am Due to an expensive problem with my current car, I m about to buy a new car today. The dealership has tried to talk me into financing for a 1000 dollar reduction in the purchase price, contingent on me making 5 payments. At the rates they ve suggested, I pay almost 800 dollars in interest in those first five payments. And break my record of never having made a car payment in my life. I ve always put aside money in the future for the next car purchase.

I think I ll pass on the financing.

By the way, I m getting a terrible deal on the car, but I m buying it because of availability.
Yikes. $800 interest in 5 months? Sounds like the dealership is optimizing their finance department’s profit quite well.

I have financed for the rebate/cash reduction. But I have not been required to keep it for 5 months, even though sometimes the dealership has told me that. The state law does not permitted a penalty for early payment of an auto loan. And I was not required to finance the full price of the car. For instance, in one case, I financed $5000 and paid it off in 3 months in order to receive a $1500 lower price through factory incentives. I can understand if the $1000 is not worth the hassle.
phinanciallyfit
Posts: 224
Joined: Mon Jul 27, 2020 12:33 pm

Re: paying for big purchases? cash or debt?

Post by phinanciallyfit »

bhwabeck3533 wrote: Mon Oct 18, 2021 6:12 am
Ron Ronnerson wrote: Sun Oct 17, 2021 10:24 am I’ll go against the grain and say interest rate arbitrage through carrying debt is worth considering.

I did a cash-out refi earlier this year and took out $150k at 2.375% for 30 years. I am thinking of taking out credit card loans to take advantage of interest rate arbitrage as well while inflation runs higher than the recent past. I’m personally pro-low-interest debt.
Ron, you got a great rate on your re-fi. I am about to close on a cash-out refinance and will be paying 2.9% (original loan was 4.1% in 2017). I'll use $80K from the re-fi and the remainder from my IRA to buy a used Class B Airstream Interstate (budget is $125K). I intend to pull half of the $45K from IRA in 2021 and other half in 2022 to reduce money given to the IRS.
Would you mind sharing where you got this rate recently? I'm toying with the idea of doing a cash-out refinance and a rate like that would help with the process.
Ron Ronnerson
Posts: 2379
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: paying for big purchases? cash or debt?

Post by Ron Ronnerson »

phinanciallyfit wrote: Mon Oct 18, 2021 10:37 pm
bhwabeck3533 wrote: Mon Oct 18, 2021 6:12 am
Ron Ronnerson wrote: Sun Oct 17, 2021 10:24 am I’ll go against the grain and say interest rate arbitrage through carrying debt is worth considering.

I did a cash-out refi earlier this year and took out $150k at 2.375% for 30 years. I am thinking of taking out credit card loans to take advantage of interest rate arbitrage as well while inflation runs higher than the recent past. I’m personally pro-low-interest debt.
Ron, you got a great rate on your re-fi. I am about to close on a cash-out refinance and will be paying 2.9% (original loan was 4.1% in 2017). I'll use $80K from the re-fi and the remainder from my IRA to buy a used Class B Airstream Interstate (budget is $125K). I intend to pull half of the $45K from IRA in 2021 and other half in 2022 to reduce money given to the IRS.
Would you mind sharing where you got this rate recently? I'm toying with the idea of doing a cash-out refinance and a rate like that would help with the process.
Loan Depot, Better, and Owning were all offering this rate. Loan Depot provided us with a loan estimate first and the others matched it. We locked in November of 2020 and closed in January of 2021. I believe rates are about a half percent or so higher now, but that’s still quite good. Since it’s been 9 months since my refi, I would recommend checking out the Refinance Mega Thread on this forum for the current best lenders. I found that thread helpful on how to get lenders to compete with each other.

In the end, I went with a small local lender in California that matched the terms of 2.375% for 30 years, $150k cash out, and no escrow account at no cost. I had to send over the loan estimate with the rate lock from Loan Depot to them to get the terms matched. The loan amount was $500k (home was valued around $850k at the time), and credit score was 800.

My sister and her husband, who are our neighbors, refi’d at the same time. They used Loan Depot and got a rate of 1.75% for 15 years (it was not a cash-out). Their cost was $600. My brother-in-law said Loan Depot was slow to respond and was not the most fun to work with but they did get a great rate so it was worth it in the end.

From what I have read, many people seem to have had a good experience with Better. They may be worth checking out.

Edit: whoops, I just realized that perhaps that question was directed at bhwabeck.
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