Author Topic: Down market. Payoff debts or dump $$ into investment?  (Read 4063 times)

gliderpilot567

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Down market. Payoff debts or dump $$ into investment?
« on: January 20, 2016, 11:24:44 PM »
Our debts are $9k on a car note at 3.75% and $19k in student loans at 8% (applied for SoFi refinance and expecting to get about 4%, else I'd be paying these down even more savagely than I am now).

So if the refi goes through (no reason it shouldn't), then we'll have about 28k debt at 4%ish (plus the mortgage, at 3.75%).

Despite our facepunchy Christmas spending, I have saved about $10k cash over the past couple months with the intent of destroying these debts. But with the market down like it is, seems like a great time to get in.

My gut wants to max out my TSP contributions right now (even to the point of putting in the entire next few paychecks and living off these savings) and putting what's left into VTSAX, but my brain is telling me to just payoff the damn debts first, we're in the home stretch with those; the market will still be slumped for a while and I shouldn't try to time it.

The debts are eating a minimum of $1k monthly cash flow, so the sooner those are gone the more there is to invest right? I want to trust my brain... but feel free to convince me otherwise!

faramund

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #1 on: January 20, 2016, 11:41:30 PM »
Given how low your interest rates should be, I'd put it in shares, but....

Have you ever invested in shares before? If you have, then fine, I have nothing else to say.

If you haven't, try to think.. how would you feel/handle if you put in your 10K and the market dropped another 10%? If you can go, meh... it'll come back up, and that's only the first of many investments, then go for it.

If not, and many first investors do get very stressed if their first investment drops. I'd suggest doing it in two steps - maybe 5K now, and wait a month and then put in the other 5K. Most of the time when the market does drop, like it has now, it will kick along at the bottom for a while, and then it will gradually pick up. So you don't have to feel like, if you don't do it straight away, you'll miss your chance. On the other hand, you shouldn't procrastinate waiting for the right moment.
« Last Edit: January 20, 2016, 11:44:04 PM by faramund »

NoStacheOhio

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #2 on: January 21, 2016, 06:23:40 AM »
You could always split the cash between the two.

Retire-Canada

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #3 on: January 21, 2016, 06:26:03 AM »
I took $5K from my LOC and put it into the market.

I'd put extra money you saved into the market if it was me and keep paying down the debts at the normal rate.

GrowingTheGreen

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #4 on: January 21, 2016, 07:17:12 AM »
I generally favor paying down debts over investing with an exception for the mortgage.  Since the markets are down significantly though, it is a good time to buy. This is my thought: make the minimum on your car since it's got a low APR. Take your extra cash and split it between the market and your 8% student loan.

zephyr911

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #5 on: January 21, 2016, 07:29:11 AM »
Our debts are $9k on a car note at 3.75% and $19k in student loans at 8% (applied for SoFi refinance and expecting to get about 4%, else I'd be paying these down even more savagely than I am now).

So if the refi goes through (no reason it shouldn't), then we'll have about 28k debt at 4%ish (plus the mortgage, at 3.75%).

Despite our facepunchy Christmas spending, I have saved about $10k cash over the past couple months with the intent of destroying these debts. But with the market down like it is, seems like a great time to get in.

My gut wants to max out my TSP contributions right now (even to the point of putting in the entire next few paychecks and living off these savings) and putting what's left into VTSAX, but my brain is telling me to just payoff the damn debts first, we're in the home stretch with those; the market will still be slumped for a while and I shouldn't try to time it.

The debts are eating a minimum of $1k monthly cash flow, so the sooner those are gone the more there is to invest right? I want to trust my brain... but feel free to convince me otherwise!
Max your TSP dude, the instant tax savings alone will offset multiple years of interest.

soccerluvof4

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #6 on: January 21, 2016, 04:52:16 PM »
When in doubt split it up. That way you can feel some satisfaction in doing both.

Alternatepriorities

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #7 on: January 21, 2016, 05:10:44 PM »
Max your TSP dude, the instant tax savings alone will offset multiple years of interest.

+1 Assuming you're not in the bottom tax bracket. If you can get your student loan down to 4% and you can write it off then it's probably worth waiting to repay it.

I find car loans a little harder to judge though. It comes down to would you keep full coverage insurance on the car if it were paid off? If not, then it's probably worth considering paying it off. When I did the math with my sister last year it turned out that her car loan plus the insurance made the loan nearly as expensive as credit card debt.

gliderpilot567

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #8 on: January 21, 2016, 07:57:37 PM »
Thanks for some great feedback so far.

2014 we were in a very low tax bracket (4 kids and wife was not working) and paid very little income tax overall. In 2015 she worked full time and I got a raise, so the situation will be considerably different.

I think I'll consider a hybrid approach. At one extreme, we could live off the $10k saved for quite some time, while I sock away most of my paycheck in the TSP (and hers in her 403b). I probably won't go that far, but it depends on how the refi goes.

If the decision from SoFi comes back good (4% or less), then we'll slow roll the student loan debts. Hell, I'll refinance it no matter what as long as it comes back below 8%. If the decision is negative, then I'll use 6k of the cash to pay off one of the 3 component student loans (each about 6k) and hold on to the rest.

Either way, I've already set up my TSP to pull $3k of my pay starting in February. I might go back in and increase it some now after I think about it - we could live for several months on the $10k saved.

I hadn't thought about the car insurance situation. For example, my little old truck is paid off, so I carry minimum coverage on it... if I crash it or it's otherwise totaled, I'll buy a beater off CL. I will do the math on my wife's car insurance. We have very cheap auto insurance (USAA with tons of discounts) but every bit helps... I might end up being surprised after I do the math.

Funny story, I saved up the 10k in a totally stupid but totally effective way. Every weekday, my bank auto-transfers $100 from checking to savings. We don't feel or notice it. So it grows by $500 a week. Sometimes I throw in extra when my checking account feels too big. Now that it's grown to five figures (in WAY LESS time than I thought it would) it's time to invest. I probably should have been throwing it at the student debt, but glad to have the cash now in this down market :)

Playing with Fire UK

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #9 on: January 22, 2016, 03:21:15 AM »
How stable are your finances in general? Is this historic debt from overspending every month (I'm thinking not as you list student and car loans), or one offs that you won't encounter again.

If you have a decent savings rate, stable jobs, efund/eplan, are confident about the SL refi, and won't have any big expenses coming up, then I would happily invest the lot. If a change of plans would mean you'd need to borrow or pay penalties on withdrawing the investment I'd wait a while or split it.

And the $100 a day trick sounds ace, I have several for 25 to meet a transaction requirement for my bank to an account that I don't see and was delighted by how quickly and painlessly it adds up!

Bearded Man

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #10 on: January 22, 2016, 08:11:22 AM »
People used to think I was crazy when I bought a house paid in cash instead of paying off my 6%+ student loans. Now my loans are less than half of what they were 5 years ago, are paying down super fast since more goes to principle now, and the house has gone up 2.5 times in value, while providing about tens of thousands of dollars in cash flow over the years.

I have a paid off place to live grow/raise my own food, etc.. I can't sleep under a paid off student loan, nor can I eat a paid off student loan. Decide accordingly for your situation.

Janie

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #11 on: January 23, 2016, 11:07:50 AM »
FERS employees get a 5% salary match to the TSP for each pay period worked. Fully funding the TSP by mid-year would mean losing out on matching contributions for the remainder of the year.
 
Edited to fix typo.
« Last Edit: January 23, 2016, 02:04:55 PM by Janie »

zephyr911

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #12 on: February 03, 2016, 11:33:15 AM »
People used to think I was crazy when I bought a house paid in cash instead of paying off my 6%+ student loans. Now my loans are less than half of what they were 5 years ago, are paying down super fast since more goes to principle now, and the house has gone up 2.5 times in value, while providing about tens of thousands of dollars in cash flow over the years.

I have a paid off place to live grow/raise my own food, etc.. I can't sleep under a paid off student loan, nor can I eat a paid off student loan. Decide accordingly for your situation.
Wouldn't you have even less total debt now if you'd gotten a loan at 3-4% and put the same cash toward the SLs?

FERS employees get a 5% salary match to the TSP for each pay period worked. Fully funding the TSP by mid-year would mean losing out on matching contributions for the remainder of the year.
That, and timing the changes right to avoid going under or over the max can be a bit of an ass pain. Now that I'm on track for exactly maxing out, I don't wanna touch it.
I have plenty of other things to invest my take-home in... will never have to worry about a lack of options. So, front-loading really isn't a draw to begin with.
Off to buy more rentals....

kaizen soze

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #13 on: February 03, 2016, 11:36:37 AM »
You could always split the cash between the two.

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dandarc

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #14 on: February 03, 2016, 11:52:47 AM »
People used to think I was crazy when I bought a house paid in cash instead of paying off my 6%+ student loans. Now my loans are less than half of what they were 5 years ago, are paying down super fast since more goes to principle now, and the house has gone up 2.5 times in value, while providing about tens of thousands of dollars in cash flow over the years.

I have a paid off place to live grow/raise my own food, etc.. I can't sleep under a paid off student loan, nor can I eat a paid off student loan. Decide accordingly for your situation.
Wouldn't you have even less total debt now if you'd gotten a loan at 3-4% and put the same cash toward the SLs?
Yeah - mortgage vs. investing is more debatable than mortgage vs. higher-rate-loan.  Perhaps the plan is to use some kind of forgiveness program or to still have the loans at death, or some other way of not paying the whole amount, so the actual interest that will be paid is not as high as stated?

Retire-Canada

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Re: Down market. Payoff debts or dump $$ into investment?
« Reply #15 on: February 03, 2016, 11:56:11 AM »
People used to think I was crazy when I bought a house paid in cash instead of paying off my 6%+ student loans.

As others have noted if by "crazy" you mean choosing the path that results in less money for the same risk than ya you were "crazy". ;)