Author Topic: When to pay a 6.25% LOC?  (Read 2039 times)

Ryvax

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When to pay a 6.25% LOC?
« on: January 01, 2015, 06:58:01 AM »
So the wife and I have paid off our truck, student loans, credit cards..... everything except out Line's of Credit.  Combined we have 35000..... The interest is only 6.25%... less than what I know our investments can make. 

Currently we still have lots of room in our RRSP and TFSA accounts, enough that it would take us about 2 years to max out.  Coincidently, it would take the same amount of time to pay off the LOC. 

Should we do 50/50, max LOC payment, max investment.....  help!

Chrissy

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Re: When to pay a 6.25% LOC?
« Reply #1 on: January 01, 2015, 10:43:22 AM »
Mathematically, maxing out the retirement accounts makes the most sense, but only if your employment situation stays the same or improves.  What if, three years from now, one of you lost your job?  What if one of you got really sick or had an accident, and required a lot of expensive care?  It would be good to be free of that additional bill.

My feeling is that any debt at 5% or greater should be paid off aggressively.  For some people, the rule is 4% or greater.  Some can't stand any debt at all no matter how low the interest rate.  What's your number? 

daverobev

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Re: When to pay a 6.25% LOC?
« Reply #2 on: January 01, 2015, 02:20:45 PM »
I'd use 6% money to buy cashflowing rental properties. I wouldn't borrow at 6% to invest in the stock market.

Can you convert the LOC into a HELOC? Can you open an Interactive Brokers account and borrow at 2% on margin vs stocks you own?

I'd just hammer the debt ASAP. You're likely to do better investing in the long term but it's far from assured, and GUARANTED 6+% returns are hard to come by. It's risk free...

Ryvax

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Re: When to pay a 6.25% LOC?
« Reply #3 on: January 01, 2015, 08:18:18 PM »
Thanks for the advice guys.

I'm in the military, so my job is pretty stable. No worries there.  I'm also covered medically.

For now I'll contribute as much as I can to my rrsp till end February then start hammering away at the debt.