Why I don’ pay off Debt early

Short post why I don’t pay off our debt early and invest money.

First, off our financial liabilities are cheap. Leasing has 2,05% Student loan 1,85% and Mortgage 1,65%, while my investments make on average 5% and I can get that return quitr safe with T or MO and even more with some REITs.

Second, even if going for lower yield investments like MMM, CSCO or JNJ with post tax yield in range of 1,5-2,5%, still I would go for one practical reason – if something bad will happin I will have money, less if share prices at the bottom, but still something at hand in case of really bad situation. But if I pay-off my debts early banks will never lend me back the money that I repaid in advance.

4 comments

  1. This is a question that gets asked a lot. Glad you were able to come to a conclusion that works for you P2035.

    I struggle with this decision constantly. When I first had my mortgage, with a 3.5% interest rate, I thought that I could earn more in the stock market and so I chose not to try to pay it off early. Now, I’ve since changed my mind because it would be nice to not have to worry about debt.

    The global pandemic has also put things into perspective. Companies are declaring bankruptcies because they couldn’t survive a few weeks to a few months in this environment. I’m sure if they didn’t have debt, they would have been fine.

    Not all debt is bad. I actually just bought a condo and the goal is to have that condo generate enough income to service the debt and then some. But this decision is a highly personal one. For me, I’m about to buy furniture and so I will have the following debts: furniture, car loan, student loans and two mortgages. Over the next 2-3 years, I want to get rid of the following debts: furniture, car loan, and student loans.

    My student loan is around 2%. Car loan is 4%. Furniture will be at 0% for a year. I probably could make more in the market, but once those debts are gone, then I’ll have more money to invest. I just refinanced my mortgage to a 3.0% interest rate and I want to get rid of that in 15 years.

    The other mortgage is going to have an interest rate of around 5% and I want to get rid of that in 15-20 years.

    Paying off debt early or not is neither always good nor bad. It’s just a personal decision that each of us will have to make. Good luck P2035.

    Liked by 1 person

    • Hi DP. Yes with 3% its a hard call. But also consider that if needed bank will not lend you back early repaid money in case of something bad, while you will have possibility to sale shares and get the money. Also your case with condo you got your equity with shares. If you repaid your debt early, there would be no condo now 😉 Never the less you are righ to repay the 5% loan. Maybe you can have it refinanced cheaper with LIBOR USD around zero.

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      • I hope to refinance at some point out of that 5%. Also, the goal is to have the tenants pay off the mortgage :).

        I have credit cards and a small emergency fund. If something were to happen, I would use those. But I hear what you’re saying. The other side of the coin is that, once the debt is paid off, if something were to happen, I wouldn’t have that debt obligation anymore.

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