This morning wasn’t the usual morning. Late-night storms left much of Charlotte out of power with noticeable debris on the roads. Replacing stop lights with policemen caused my morning commute to last 2 hours (which it’s usually not). I was understandably PO’d until I cranked up the radio and heard one commercial which stole my attention for the rest of the ride.
Pay Off Debt
It was a mortgage loan officer convincing people to switch from 30-yr mortgages to 15-yr, which I’m completely onboard with (assuming your budget allows). The benefit is undeniable when comparing the difference in interest you’ll pay, but I had a major problem with what he said next:
“No one is making money in stocks; no one is making money in the market. Any extra money you have should go towards your biggest asset, YOUR MORTGAGE!”
Problem #1 – I believe the house is the asset, the mortgage is a liability. (Crystal’s Comment: I agree.)
Problem #2 – Who is No one? And why aren’t they making money right now? (Crystal’s Comment: I also wondered how I became a no one…we have made good returns in stocks…)
This small radio advertisement had me reevaluating my personal situation. I currently have $9200 left to pay on my student loan at an interest rate of 4.8% (much like you’d see on a mortgage) and I’m still waiting for
to offer lower rates. Last year, after my Roth IRA contribution and making sure I had an emergency fund to cover 6 months, I invested $12,000 into a Mutual Fund. I’ve been extremely pleased with the 16% it’s been earning.
The way I see it, if I can earn >4.8% then why would I bother paying off my student loan? I wouldn’t be losing money per se, but I’d be foregoing earning more. If I left the $12000 in my online savings account earning 1.2% then I would certainly pay off the loan.
I could also think about buying gold coins as an investment versus investing in real estate. Gold always is worth something and could keep growing in value with time. By the time I retire, who knows how much gold could sell for per ounce?
Indebting vs. Investing
This is what I call “Indebting vs. Investing.” Should I pay off debt or invest funds? The answer to your specific scenario isn’t just about numbers, it’s about psychology; it’s how you think. I broke it down to Earning money or Finding Freedom. What drives you more?
As long as the interest I pay on my loan (mortage or student) is less than the interest I can earn by investing in say a home based business, I’m not going to worry about my debt. This is usually the case with a credit card debt consolidation loan and this works for me. This is because I’m more driven by earning more rather than finding freedom.
If I were to be offered a job that pays more than my current one, but requires more time away from home and in the office, I would accept the new position. No matter what the circumstance (within my morals) I would choose to earn more.
On the other hand, someone else may value their freedom more. In the above scenarios they would:
1. Choose to pay off debt because they don’t like the feeling of owing someone or worse, being “owned” by someone.
2. Turn down the job offer so they can have more free time.
So when asking yourself if you should pay off debt or invest your excess funds, first ask yourself what kind of person you are (you may surprise yourself).
To some, time is money. To me, money is money.
Crystal’s Comments: To Crystal, time is priceless, debt sucks, and investing is profitable (hopefully). I would rather focus on the best ways to make passive income. This is why my husband and I save, invest, AND are paying off our mortgage in 11 years or less. I love investment returns and I love to pay off debt. I like having my cake and eating it too. 🙂
Where do you stand – pay off debt or investing or both?