The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Ugh on October 31, 2013, 07:21:11 PM
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I cannot begin to express how completely screwed up my financial situation is.
On the plus side, I have an inherited asset worth more than my outstanding debt.
I am considering borrowing on margin (7%) to pay off my ludicrous debt ($82,000) which I am struggling to cover at ridiculous interest rates.
Without going into my other crushing financial issues, am I insane to borrow against this investment to get out of debt?
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It would probably be much easier to comment with a much more complete explanation of the issues, the debt, and the rest of the circumstances.
On face alone, no, this sounds like a really bad idea.
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Provided you have the discipline to not take on any more debt, and will aggressively pay down the 7% loan, I'd do it.
If it's a depreciating asset, or isn't providing you at least 7% utility, then I'd sell it to pay of your debts.
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I do a little just-for-fun trading on margin and once borrowed a bit because I didn't want to liquidate any stocks at that moment. BUT, I'm very careful to only use a small percentage of the margin funds available. The danger of borrowing too much is that the market may suddenly tank and you get a margin call.
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It's an oft-repeated phrase, but it's true:
You can never borrow your way out of debt.
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If the asset is valuable enough to borrow against, and you are willing to put it at risk by borrowing against it, would you consider selling it? Is it an income producing asset (a rental house) or an asset with depreciating value (a car) or an asset with purely market based value (a painting, an antique, etc.)? I think if it is depreciating you should seriously consider selling. If it is market based, and you think the market now is good, sell it. If it is sentimental, is there anything else you have that carries similar emotions for the same person that you could keep instead?
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It's an oft-repeated phrase, but it's true:
You can never borrow your way out of debt.
However, replacing 8% debt with 3% debt, 20% debt with 10% debt, or any other situation where there are not tax reasons for NOT making the change, is worth it - IF you are sure not to re-use the available 20% debt.