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Shop: Kraken Kratom Red Vein Kratom   Unfolding Nature Unfolding Nature: Being in the Implicate Order

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InvisibleDieCommie

Registered: 12/11/03
Posts: 29,258
Paying off or keeping debt?
    #13309489 - 10/08/10 04:25 PM (13 years, 5 months ago)

Hi all,

I would like your advice about my wife and I's debt.  We have student loan debt at 6.5% and credit card debt at 4.7%.  We have a real low credit card interest rate as you can see, so we have been not paying it off and instead paying off student loans.  The only downside I see to this is our credit score will be lowered.  (It has lowered by 15 points since we took on 6k worth of credit card debt).

Now my question comes in about saving for a house down payment.  We are keen on buying a house in 3-6 years, and of course want to avoid PMI as well as get a good rate.  Now I wonder if maybe we dont want to pay off this debt but instead save for a larger down payment?  Interest rates will likely be higher in 3-6 years right?  If so, I may want that low interest debt.  Im not confident that I can beat 6.5%, but I can probably come close and the difference could be justified by a larger house down payment.

Ive almost convinced myself that this is a good idea, but want a reality check from you guys.

Thanks!

(PS, Im not interested in hearing about metals and doom and gloom predictions.  I already sold my gold, and am selling off my silver right now.)

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Invisiblebadchad
Mad Scientist

Registered: 03/02/05
Posts: 13,377
Re: Paying off or keeping debt? [Re: DieCommie]
    #13310699 - 10/08/10 09:34 PM (13 years, 5 months ago)

In part, the interest rate on your home mortgage will be determined by your credit.  Since you are likely to be signing a 15+ year mortgage (and devoting the majority of your expenses to the house), a small dip in the mortgage interest rate will result in a huge savings.  How much, obviously depends on the amount you intend to borrow.

I'd aim to improve my credit score as much as possible by eliminating debt.  This will get you a better home mortgage rate. Over 15+ years, the lower interest rate will be worth it.

PMI is relatively cheap.  It's about $50 per 100k.  Personally, I pay about $47/100k.  I wouldn't worry about the PMI.  Also keep in mind that your PMI will drop out as your home appreciates and you pay down your loan.


--------------------
...the whole experience is (and is as) a profound piece of knowledge.  It is an indellible experience; it is forever known.  I have known myself in a way I doubt I would have ever occurred except as it did.

Smith, P.  Bull. Menninger Clinic (1959) 23:20-27; p. 27.

...most subjects find the experience valuable, some find it frightening, and many say that is it uniquely lovely.

Osmond, H.  Annals, NY Acad Science (1957) 66:418-434; p.436

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InvisibleDieCommie

Registered: 12/11/03
Posts: 29,258
Re: Paying off or keeping debt? [Re: badchad]
    #13310846 - 10/08/10 10:31 PM (13 years, 5 months ago)

Thx for the thoughts.  I will probably just forget about the house down payment and concentrate on paying the student loan debt.

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InvisibleAsante
Omnicyclion prophet
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Registered: 02/06/02
Posts: 87,297
Re: Paying off or keeping debt? [Re: DieCommie]
    #13312026 - 10/09/10 09:31 AM (13 years, 5 months ago)

Getting out of debt first is key. Not just is it good housekeeping but as said its good for any types of loans you might want to take on in the future.


--------------------
Omnicyclion.org
higher knowledge starts here

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InvisibleShins
Fun guy
Male User Gallery


Registered: 09/15/04
Posts: 16,337
Re: Paying off or keeping debt? [Re: Asante]
    #13312482 - 10/09/10 11:43 AM (13 years, 5 months ago)

In our current economic environment,  the conditions favor NOT paying your debt, especially with your interest rate.

The US dollar is sinking like a rock, which means your debt is getting easier to pay off.


Think about this;

I have a 10% line of credit that i have maxed out to buy gold.  Gold is currently appreciating `30% every year

I'm netting 20% every year on the difference between currencies on that credit.


Now, the risk you take is one of deflation.  if the central bank suddenly decides to raise interest rates, or we have some other type of deflationary phenomenon, the whole thing could turn on it's head.

Considering the amount of debt the nation and the people are in, i'm betting the fed is going to "fight deflation" (create currency inflation) with all they gave got.


--------------------
http://yourlogicalfallacyis.com/

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OfflineGroovy Grant
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Registered: 07/31/00
Posts: 6,635
Loc: TX Flag
Last seen: 21 days, 1 hour
Re: Paying off or keeping debt? [Re: Shins]
    #13312544 - 10/09/10 11:59 AM (13 years, 5 months ago)

Lol, wait you bought gold on margin...!

That 20% is unrealized, you reealise that debt each month, decreasing free cash flow. Until the gold is sold, it's worth nothing. I mean you could have made 7% just in September with the general market... Seems like you've maximized the amount of risk you could possibly take. Buying speculative metals with borrowed money. Even worse, if it's a HELOC you used to buy this you've put your home at risk on this trade. Although, I assume you know what your risk tolerance is, but it sounds way too shaky for me!


Anyways, I am in a similar quandary, with student loans and an unsecured debt. I have cash, which I have been holding onto due to the economy. However, I'm beginning to feel more comfortable with the economic outlook. I think I am going to pay off the unsecured debt and take the monthly savings (what I don't have to pay each month) and put it toward my savings. The student loan sucks, but the interest is a write off each year. So the effective interest rate paid, is much lower than what's stated. Additionally, I don't think they factor student loans in with credit scores. They will just take your monthly installment amount on those loans out of your gross income to calculate your total loan amount.

I'd pay the unsecured debt and take the money saved (the monthly installments) and put it towards building cash buffers. But that's just my two cents.

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InvisibleAsante
Omnicyclion prophet
Male User Gallery

Registered: 02/06/02
Posts: 87,297
Re: Paying off or keeping debt? [Re: Shins]
    #13312940 - 10/09/10 01:54 PM (13 years, 5 months ago)

Quote:

I have a 10% line of credit that i have maxed out to buy gold.





You DIDN'T :eek:

Grabbing gold is important but is trumped by getting the fuck out of debt. I'm as bullish on gold as a stampede but with your own money.

If shit hits the fan on a personal level you are forced to sell your gold at loss and are left with a debt and bad credit rating.



What you're doing, investing on a loan, is what killed most of Wall Street, ushering in the Great Depression.


--------------------
Omnicyclion.org
higher knowledge starts here

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InvisibleShins
Fun guy
Male User Gallery


Registered: 09/15/04
Posts: 16,337
Re: Paying off or keeping debt? [Re: Asante]
    #13313169 - 10/09/10 03:04 PM (13 years, 5 months ago)

Lol, i'm not recommending my own personal investment, that was just an example.

I bought most of the the gold/silver 4 years ago,  since then it's doubled in price,  I'm not too worried about the price dropping,  it's going to have to drop 50% in a day for me to lose on that trade.

The same goes for stocks though,  nothing is realized until you sell. 

Same with dollars and credit.

My understanding of economics is telling me that these days gold isn't that speculative, risky or volatile of an investment. The fed just moved up to 2nd biggest buyer of US treasuries and are talking about a "Quantitative easing 2."  (currency devaluation)

I would say holding on to speculative dollars is a HUGE loss risk.

PS: YES I DID! :laugh: :laugh: :laugh:


--------------------
http://yourlogicalfallacyis.com/

Edited by Shins (10/09/10 03:22 PM)

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OfflineClammyJoe
Azurescen Head
Male

Folding@home Statistics
Registered: 11/03/05
Posts: 3,691
Loc: PNW
Last seen: 11 years, 3 months
Re: Paying off or keeping debt? [Re: Shins]
    #13315384 - 10/10/10 06:47 AM (13 years, 5 months ago)

The government doesn't want you to pay your debt down. This world has come to the point where saving money and paying off debt is about the most rebellious thing you can do.

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Shop: Kraken Kratom Red Vein Kratom   Unfolding Nature Unfolding Nature: Being in the Implicate Order


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