Do you invest while in debt?

[Glelas]

A friend of mine has around 20-25 grand in credit card debt. Admittedly this was me about 8 or so years ago but I started practicing what my libertarian values preached and I am in better financial shape now thanks to places and people like this. In any event, he is in credit card debt. He has a good paying job, a house, kids, etc...Overall I'd say if he buckled down and focused on getting out of debt he probably could do it in a year.

The problem is, he feels, and I do too, that the sooner he invests in PMs, overseas markets, and any other ways to protect his money the better - a year may be too late or just "later" than if he did it now.

Should he take whatever extra cash he has or makes now and invest or should he pay off the bills?
Or should he continue to charge on those cards to invest?

And after all his investments are underway THEN pay off the cards?

My initial reaction was to advise him to pay off the cards, but watching this economic spiral here in the US, I am not so sure anymore...Protect your money AND then worry about your debt...

 

[Bruno]

Welcome to the RP Forums!

you're going to get a lot of differing opinions on this one.

My thought is pay off those high-interest cards first, then worry about PMs and investments.

 

[brandon]

I'd personally pay off my debt.

Does your friend have a 401k?

Perhaps he could loan himself the money to pay of the debt from his 401k

 

[Glelas]

I'd personally pay off my debt.

Does your friend have a 401k?

Perhaps he could loan himself the money to pay of the debt from his 401k

We thought of this. Problem is we are engineer's for a huge "phone" company. They lay people off every quarter it seems. While we are both in good positions at our current job, to loan yourself the money and then get stuck paying it back in one lump sum could be risky...We have to check into this, and see if you can still pay yourself back in payments instead of all of it...That would not be fun.

 

[krazy kaju]

That makes absolutely no sense. What happens if your investments lose value? That's completely possible. Nobody is omniscient and nobody can know all market conditions at once. Most investors lose money or gain below the market average. It's better just to pay off that high-interest bearing debt.

 

[Thrashertm]

A friend of mine has around 20-25 grand in credit card debt. Admittedly this was me about 8 or so years ago but I started practicing what my libertarian values preached and I am in better financial shape now thanks to places and people like this. In any event, he is in credit card debt. He has a good paying job, a house, kids, etc...Overall I'd say if he buckled down and focused on getting out of debt he probably could do it in a year.

The problem is, he feels, and I do too, that the sooner he invests in PMs, overseas markets, and any other ways to protect his money the better - a year may be too late or just "later" than if he did it now.

Should he take whatever extra cash he has or makes now and invest or should he pay off the bills?
Or should he continue to charge on those cards to invest?

And after all his investments are underway THEN pay off the cards?

My initial reaction was to advise him to pay off the cards, but watching this economic spiral here in the US, I am not so sure anymore...Protect your money AND then worry about your debt...

I am paying off student loans at a slow rate, and I still have investments. I could cash in all of my investments and pay off the loans, but I prefer having the liquidity to make a major purchase such as a house.

 

[brandon]

We thought of this. Problem is we are engineer's for a huge "phone" company. They lay people off every quarter it seems. While we are both in good positions at our current job, to loan yourself the money and then get stuck paying it back in one lump sum could be risky...We have to check into this, and see if you can still pay yourself back in payments instead of all of it...That would not be fun.

You don't have to pay it back in a lump sum, you pay it back in payments plus you have to pay interest to yourself. If you default on it, you have to pay tax + early withdrawal fee on the money you loaned to yourself.

 

[tmosley]

Well, default is always an option if times get tough. He should save enough cash and cash equivalents to survive for six months FIRST (I keep mine in a safe at home in case of banking holiday--any safe that has valuables in it should be bolted to the ground, preferably into concrete). After you have that buffer, only then should you start working hard on paying down debt.

If he has credit card debt, he would probably be best served canceling them all now, before his rates go way up (due to interest rate regulations). Anything you could do with credit cards you can do with debit cards. You should deal only in cash whenever possible, however. Personally, when I was paying off my credit cards, I split the money between investments and paying off the cards. My investments did FAR better than the interest payments I saved on the cards, but that certainly won't always be the case.

 

[Zippyjuan]

I am with tmosley. You need an "emergency fund" which is pretty liquid and safe (not in gold or stocks)- enough to be able to pay all your bills for at least six to nine months. After you have that, what is your biggest return/ loss? Interest rates on credit cards are usually pretty high so unless you can invest in something where you get that return (after taxes and expenses) it makes more sense to put your money into paying off the debt. Student loans may have lower rates so in that case you need to compare the interest paid vs potential return on investments.

Overall I'd say if he buckled down and focused on getting out of debt he probably could do it in a year.

$25- 30k in debt can be paid off in a year? He makes way more than I do (and spends more too but I don't have the wife and kids thing to worry about). If he owes that much now, he does not have "extra cash".

 

[lbadragan]

Look at it like this - if he pays off his credit cards, he is GUARANTEED a retun of 20% or so depending on the rates.

 

[lavis88]

Look at it like this - if he pays off his credit cards, he is GUARANTEED a retun of 20% or so depending on the rates.

his real rate of return would be the credit card rate - inflation. But agreed, it's too unpredictable and depending on the interest rate of the debt he should probably pay those off first.

 

[Glelas]

I didn't look at that way, but I see what you are all saying. and I am inclined to agree.

The only thing I failed to mention was when I said, "invest" I meant long term for his kids, a supplement to his 401k, but invest overseas alla Schiff, kind of what I am trying to do and researching at the moment.

Would that change things at all? It is not investments for short term growth, more for like if the crap hits the fan in 10 years or more, something, albeit a small amount will hopefully be safe and in different currencies and PMs.

Just brainstorming really.

 

[EddieG]

I would pay off any variable debt - credit cards qualify, as many can attest. For fixed loans I would pay the minimum monthly payment.

 

[raiha]

Been paying all my debts since credit crunch...now, ethically, if i lose any money when i invest, at least it will be my own. There are too many Black Swans around right now, to be in debt and invest.

 

[lavis88]

I didn't look at that way, but I see what you are all saying. and I am inclined to agree.

The only thing I failed to mention was when I said, "invest" I meant long term for his kids, a supplement to his 401k, but invest overseas alla Schiff, kind of what I am trying to do and researching at the moment.

Would that change things at all? It is not investments for short term growth, more for like if the crap hits the fan in 10 years or more, something, albeit a small amount will hopefully be safe and in different currencies and PMs.

Just brainstorming really.

You really should be trying to save or invest while you can because if shit does hit the fan you don't want to have nothing because you took all your income and paid off those credit cards which are no longer providing any credit.

You have to find a balance and protect yourself from the two scenarios, regardless of which you think is more likely. You don't want to get killed by high debt if deflation kicks in, and you also don't want to be left with no real assets in a high inflation environment.