Debt Level

[sccredit]

Obviously everyone wants to be debt free, my advice is to pay the most expensive debt first and then the lower debt.  As an example, DW's studen loans at 6% are first to go, then the mortgage at almost 4%, then my truck at 2.5% and then DW's Infiniti at .9%.  

[sccredit]

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@sccredit wrote:

Obviously everyone wants to be debt free, my advice is to pay the most expensive debt first and then the lower debt.  As an example, DW's studen loans at 6% are first to go, then the mortgage at almost 4%, then my truck at 2.5% and then DW's Infiniti at .9%.  

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Also as a rule each annual bonus I get 50% goes against the mortgage, 25% into savings and 25% into home improvements or recreation (last year was a new 36 ft travel trailer, this year will be new flooring and a bedroom set)

[MarineVietVet]

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@sccredit wrote:

Obviously everyone wants to be debt free, my advice is to pay the most expensive debt first and then the lower debt.  As an example, DW's studen loans at 6% are first to go, then the mortgage at almost 4%, then my truck at 2.5% and then DW's Infiniti at .9%.  

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Sometimes I wonder about that. 

But of course you are correct.

[sccredit]

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@MarineVietVet wrote:

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@sccredit wrote:

Obviously everyone wants to be debt free, my advice is to pay the most expensive debt first and then the lower debt.  As an example, DW's studen loans at 6% are first to go, then the mortgage at almost 4%, then my truck at 2.5% and then DW's Infiniti at .9%.  

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Sometimes I wonder about that. 

But of course you are correct.

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I guess I could correct that to say "everyone with common sense wants to be debt free" 

[cakkd]

Financial advisors usually say the one debt to take on is a mortgage. (It used to be a 15-year mortgage at that, but that's softened a bit with lower interest rates.)

My student loans and car loan are well below my mortgage IR, but I've decided to take them on first. Why? First, a mortgage is an appreciating asset (and my home value has been going up about 10% per year lately). A car loan is a depreciating asset, and education a stagnant asset. But more importantly, I can knock the car and student loans out much faster than I can a mortgage. Once they are off the table, I can put more towards the mortgage, retirement, etc.

[heyitsyeh]

Good plan, I also think that for most people including myself a mortgage will be an assumed/fixed cost in most of life while other debts are meant to be paid down as fast as possible. I hacked away 25k in student loans in 8 months by living minimally.

[vanillabean]

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@cakkd wrote:

I'm 42 years old, and recently went on an overseas vacation with my 61-year-old friend who has been retired since he was 40. Though the way he retired early can;t be replicated, he had some simple advice to me on how I could at least retire at age 65: 1) Make sure you are getting the maximum match on your employer retirement account; 2) Pay off debt, and get your debt level as low as possible.

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@cakkd wrote:

My student loans and car loan are well below my mortgage IR, but I've decided to take them on first. Why? First, a mortgage is an appreciating asset (and my home value has been going up about 10% per year lately). A car loan is a depreciating asset, and education a stagnant asset. But more importantly, I can knock the car and student loans out much faster than I can a mortgage. Once they are off the table, I can put more towards the mortgage, retirement, etc.

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I suppose it would depend on how much you're now putting aside for retirement.

[Anonymous]

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@cakkd wrote:

I'm 42 years old, and recently went on an overseas vacation with my 61-year-old friend who has been retired since he was 40. Though the way he retired early can;t be replicated, he had some simple advice to me on how I could at least retire at age 65: 1) Make sure you are getting the maximum match on your employer retirement account; 2) Pay off debt, and get your debt level as low as possible.

I know these forums are focused on credit, and I have been focused on improving my credit to get the best mortgage refinancing rate. But isn't lowering your debt level a more important priority? My current debt payments are 36% of my gross income. I'd like to get this down to below 20% in the next three-and--half years. According to my friend, even though my student loan rates are little above 2% and car loan around .7%, I should still pay them off as fast as possible.

It looks like we are going to be fighting deflation for a while, so this means low borrowing rates but also low interest on savings.

Does it then make sense to concentrate now on paying off debt?

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I dont think anybody could justify not paying off your debt when you have the money to do so. 

[youdontkillmoney]

One way of looking at it is paying off debt is a 100% way to get a return on your effort, that return is whatever interest payment you are paying on the debt, if the debt is 10% interest and you pay it off, you saved 10%, where else are you going to get 10% return on your money. use debt, yes, wisely, but pay it off and get it outta your life.

[heyitsyeh]

Nobody ever got into trouble for telling you to pay down your debt. It's a guaranteed return on investment.