Author Topic: Debt emergency, or invest while repaying  (Read 4660 times)

danzabar

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Debt emergency, or invest while repaying
« on: October 30, 2012, 07:41:32 AM »
Hi everyone, I wanted to put my situation out for feedback as I would like to accelerate my freedom.
29 y/o making 3000 per month after taxes/10% rrsp.
I currently owe: 8100 on a 4% interest rate for my car and miscellaneous stupid debt from the past, and 2000$ to the bank of mom for helping me pay off a credit card debt.
Groceries 180
Eating out/misc 130
Gas 160$ (I have to drive my car for work and get reimbursed mileage)
mortgage 1000 (and property taxes)
condo fees 156
Insurance 72
Internet 33
Phone 60
Utilities 40
Clothing 40
My debt repayment has been 380 per month.
I have also been investing 360 per month into index funds.
I have been dabbling with the idea of axing my index fund contributions in order to step up by debt repayment to roughly 750 per month.
Does this make sense? Mentally I feel it will be encouraging to get that monkey off my back but I don't want to miss out on a potential for rrsp deductions and growth from rrsp.
Any feedback/face punches would be lovely!
« Last Edit: October 30, 2012, 12:44:36 PM by danzabar »

jpo

  • Pencil Stache
  • ****
  • Posts: 518
  • Age: 32
  • Location: North Carolina
Re: Debt emergency, or invest while repaying
« Reply #1 on: October 30, 2012, 11:05:53 AM »
Only face punch I can see might be a light slap about your phone and the high cost of housing.

If I was you I would pay of the Bank of Mom first, then I would pay off the debts if their interest rate is higher than ~6%, otherwise invest.

Of course, if you're more likely to blow the money instead of invest, pay off your debt.

Done by Forty

  • Stubble
  • **
  • Posts: 211
  • Location: Tempe, AZ
    • Done by Forty
Re: Debt emergency, or invest while repaying
« Reply #2 on: October 30, 2012, 12:05:38 PM »
Your investments are likely to beat 4% so the math says to pay the minimums while investing everything else. 

There may be a even better strategy: e.g. you sell the car, pay off the loan, and buy something cheaper outright.

AJ

  • Pencil Stache
  • ****
  • Posts: 906
  • Age: 36
  • Location: Oregon
Re: Debt emergency, or invest while repaying
« Reply #3 on: October 30, 2012, 12:24:36 PM »
If it were me, I would pay off the Bank of Mom before investing or buying luxuries like dining out. It just courtesy, and that is a relationship you want to keep as solid as possible. Would you borrow money from her to invest or eat out? That is essentially what is happening when you spend money in those areas ahead of paying off that debt. Even if she isn't in a hurry to be paid back, you will show you can be trusted by paying it back as quickly as you're able.

danzabar

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Debt emergency, or invest while repaying
« Reply #4 on: October 30, 2012, 12:43:04 PM »
Great feedback so far,
paying my mom back as soon as possible is a very good goal, I have limited my eating out as much as possible however my girlfriend does not always approve of eating at home and therefore the only time I eat at restaurants is with her to keep the lady happy.
I think I will limit my rrsp contribution until I have paid back the 2000$, and then split repayment with the loan and index funds.

danzabar

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Debt emergency, or invest while repaying
« Reply #5 on: November 20, 2012, 08:54:23 AM »
Hi everyone,
I wanted to give an update (public accountability!) because I've made some big changes of late.
I decided to rent my condo out for 1100$ covering most of my costs, short about 100$ a month but allowing me to move from quebec to ottawa, ontario (walking distance to work) and pay only 550$ a month in rent. I will also be saving 2000-3000 in taxes a year.
This has been a huge change, going to live with roommates from having a fancy riverfront condo. There has been some temporary pain in terms of costs to switch my car and everything provincially but I'm hoping these will be recouped after a month.
This should allow me to repay my mom in just over 6 weeks and pay the rest of my credit line off at almost twice the rate.

mindaugas

  • Bristles
  • ***
  • Posts: 367
  • Location: Littleton, CO
    • Mike Says Meh
Re: Debt emergency, or invest while repaying
« Reply #6 on: November 20, 2012, 09:07:13 AM »
Hi everyone,
I wanted to give an update (public accountability!) because I've made some big changes of late.
I decided to rent my condo out for 1100$ covering most of my costs, short about 100$ a month but allowing me to move from quebec to ottawa, ontario (walking distance to work) and pay only 550$ a month in rent. I will also be saving 2000-3000 in taxes a year.
This has been a huge change, going to live with roommates from having a fancy riverfront condo. There has been some temporary pain in terms of costs to switch my car and everything provincially but I'm hoping these will be recouped after a month.
This should allow me to repay my mom in just over 6 weeks and pay the rest of my credit line off at almost twice the rate.

well that escalated quickly :) Congrats!

MoonPilgrim

  • 5 O'Clock Shadow
  • *
  • Posts: 78
Re: Debt emergency, or invest while repaying
« Reply #7 on: November 20, 2012, 09:13:36 AM »
How mustachian of you!  Congratulations--I'm very jealous of your walk to work, that's awesome!  You just gave yourself quite a pay raise.  :)

danzabar

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Debt emergency, or invest while repaying
« Reply #8 on: November 20, 2012, 12:39:10 PM »
thank you :)
I'm learning so much here

PJ

  • Handlebar Stache
  • *****
  • Posts: 1390
  • Age: 49
  • Location: Toronto, Canada
Re: Debt emergency, or invest while repaying
« Reply #9 on: November 20, 2012, 10:23:28 PM »
Very inspiring!  Some big changes in a short time!

annabel

  • 5 O'Clock Shadow
  • *
  • Posts: 5
  • Location: SF Bay Area
Re: Debt emergency, or invest while repaying
« Reply #10 on: November 21, 2012, 07:56:54 AM »
Congrats on the positive changes! I used to live in QC and the cost of living is very expensive now; you won't regret moving out of there.