Paying off Debt Slowly

[jpg7n16]

Even DR tells people who are on "baby step 2" that if there are obvious signs in your personal economy that layoffs may be coming (business has been really bad, others have been laid off, etc.), that you should put the plan on hold and pile up cash.

But if you're just scared because someone in a different industry lost their job, while your industry is perfectly secure, he'd argue against that.

Why pay off faster?

40,000 of CC debt @ 19%

In 5 years, you would make 60 payments at $1,037.62 for a total of $62,257.32. Since 40 of that was the balance, then you paid 22,257.32 in interest

If paid off in 1 yr, then it's 12 payments at $3,686.26 for a total of $44,235.16. Only 4,235.16 of interest. (2 years is 8,392.27 in interest, 3 is $12,784.67)

Would you like an extra $10k-18k? Then just imagine that someone will pay you $18,000 to pay off your credit card this year.


(For 20k of CC debt, just divide everything by 2)

[Stuartthomas]

In the current economy, lenders are more willing than ever to extend payment times, or even allow borrowers to skip a payment. You have nothing to lose by calling customer service to see if there will give you this extra leeway.

[EconoMutt]

Originally Posted by Stuartthomas

In the current economy, lenders are more willing than ever to extend payment times, or even allow borrowers to skip a payment. You have nothing to lose by calling customer service to see if there will give you this extra leeway.

I've got a credit line that allows interest only payments.
I normally pay more than the interest, but it's nice to know you are considered current if you only pay the minimum.

[littleroc02us]

I am a huge DR fan, but with my own values in place. I am debt free and am very proud of it. I paid of 50k in under 5 years. All I have left is my house payment. What being debt free means to me is that I have an incredible amount of disposable cash to put towards finishing off my emergency fund and then to start knocking off my mortgage. When you have debt from credit cards and car payments it really slows down your progress.

[ea1776]

Originally Posted by EmmersonBiggins

I'm doing better than 7.1% in my taxable brokerage account, which I started in June of 2009 when I got my first decent sized bonus. As long as it outperforms 7.1%, I'll keep investing more than I'm prepaying. Essentially, all that I've invested so far has been on dividend stocks where the dividend yield is high, so I have no motivation to sell the stocks when they're paying me a compounded rate of 10% or more (I've reinvested the dividends). I will stop making monthly savings if it gets to the point that additional investments won't yield the 7.1% and I'll shift to throwing more money at the car payment.

Careful, don't forget about the taxes you have to pay on the dividend distributions. That takes down the investment yield a bit depending on what tax bracket you are in.

If I were you, I would definitely pay off that 7.1% loan before investing in a taxable account. That is a guaranteed 7.1% "rate of return". Sure, it's possible to beat that (bear in mind you'd probably need to yield >9% or so to get over the tax hump), but is the juice worth the potential squeeze? Not in my humble opinion.

[Stuartthomas]

i cant understand why dont people stop taking loans if they cant pay it back..then looking for the debt management firms to consolidate their loans or something like payday loans which actually can get them trap..

[Stuartthomas]

so a debt free morning sucks you......then i think its ok for you to go to bed having debt over your head

[Debt Relief]

Originally Posted by Adria.John

I think managing debt is important. If you take loan then you should know by what means you'll gonna pay it off and in how many years. People who are expert in money circulation makes quite a lot of money in it and they know how to deal with in and outs of debt.

For me debt management works perfectly fine as i have a regular pay and i take payday loans for quick payments and easy handling.

I have never nor will I ever take a payday loan. There is nothing I need in this world (or cannot acquire with a 2nd job if necessary) that I need so badly that I would take out a payday loan. Those companies are legalized loan sharks IMO. I will do without or save until I can pay cash.

[ferriwinkle]

We are working on paying off our debt. We have sunk ourselves into a vast hole of credit card debt and are trying to climb out. With my income and my wife's income, we can't reallistically pay our debt off fast, but we are "finding" extra money to pay a little more on our credit cards, and every little win makes us feel good--we are moving in the right direction. We have a mortgage and a car payment (from better money times), but we can't working on paying more than the standard payment on those until we pay off our credit cards.
thanks for all the great posts!!

[Eric80]

it really depends on what you think. but for me, I'd like to pay it off asap, because the longer the debt lasts, the more interest I need pay. pay off debt in 5 years? will I get more debt in these 5 years? possibly.

[TraderSmits69]

Hyper inflation could hit us in the next 18+ months, if it does people carrying debt will be thrashed.
Paydown debt before rates skyrocket.

[jpg7n16]

Technically, hyper inflation is actually beneficial to any holder of debt. Especially if the income adjusts to match the new expenses. Debt does not inflate.

Because when future dollars become worth less and less, if my debt owed remains the same dollar amount, it is also worth less and less.

Pretty simple with an example. Say I own a house I bought for $150k with a mortgage of $100k. In a high inflation scenario, next year the house would "inflate" in value to say $160k (about 7% inflation). The debt doesn't inflate though, so I still only owe $100k. Which would be even easier to pay down if my income went up 7%.

Inflation benefits borrowers.


You should pay down debt because its current interest rate is fairly high, not because of what may or may not happen with inflation. That should never really enter your mind.

[Snodog]

Originally Posted by jpg7n16

Inflation benefits borrowers.

Agreed.

If I thought hyperinflation was inevitable in the next year and a half I would borrow as much money as possible buying hard assets.

[EconoMutt]

It's really hard for me to see hyperinflation in the next 18 months.
5 to 10 years down the road?.... maybe.

[Snodog]

Well you can put me firmly in the deflation camp.

[EconoMutt]

Originally Posted by Snodog

Well you can put me firmly in the deflation camp.

I'm afraid a Japan style deflation is a likely scenario.
It will make it very hard for people with large amounts of debt to dig their way
out.