Author Topic: Using money from an investment account to pay down debt  (Read 1791 times)

JSMustachian

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Using money from an investment account to pay down debt
« on: June 21, 2017, 03:35:16 PM »
I am asking this question for my parents.

My parents are "normal" and not anything close to Mustachian. They love debt and have had it their entire lives. My dad (60 years old) is trying to get their finances in better shape and my mom (55) likes to spend more than what she makes.

My dad is retired and has a nice pension that pays for all his living expenses and then some (approximately $80,463 a year). My mom still works and makes good money ($90,000 a year). They also have an account with a million dollars in it earning 6.39%% interest.

My parents have two mortgages, over 100k in additional debt ranging from a Chevy Suburban, Kawasaki side by side, credit card debt, and loans for various renovations on their property. Under any circumstances would you with withdraw some of that million to pay off debt? They do not depend on this million dollar account for their living expenses. My dad has stated he does not want this account to go under 1 million dollars.

It pains me to see my parents drowning in debt/interest payments. My mom is not willing to cut expenses or reduce spending like a sane person would. I would think it could make sense for CC debt if the interest is much higher than the 6.39%. Any advice?

« Last Edit: June 21, 2017, 03:52:28 PM by JSMustachian »

Cossack

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Re: Using money from an investment account to pay down debt
« Reply #1 on: June 21, 2017, 04:22:50 PM »
It is not like they are going to get into financial trouble. Do they actually want your advice? Sometimes it is better to not say anything with family.

The best thing for them to do is just pay down the debt. The $1m bank account sounds nice, but it is just a pride thing to keep it there when you don't actually have that amount minus the debt.

Where do you get 6.39% interest on bank deposits? I live in Australia and I would love to be to get that kind of interest rate.

PapaBear

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Re: Using money from an investment account to pay down debt
« Reply #2 on: June 22, 2017, 03:24:31 AM »
When looking at it only from the technical/mathematical side, the answer should be fairly easy:
- Compile a list of all the debts, ranked from highest interest to lowest
- Payoff all debt above and equal to 6.39% interest
The rationale is quite simple: Why paying for money at a rate of x% if you have money available that earns less interest (assuming that the 6.39% is a fixed interest rate and not an average return rate).

However, as Cossack has stated already, advice among relatives is always a bit difficult. Maybe pure math helps. Sometimes also framing it as questions (e.g. "What is your investment rationale for xyz...", "What are your (financial) plans for your retirement together") helps as well.

For now, I would focus on one issue at the time (e.g. interest rates). Try not to mix the discussion with criticism on their lifestyle and expenses and be open for ideas. To be honest, even consolidating debt at an interest rate <6.39% would make economic sense in this fixed income situation.

If that subject is tackled, you can move on and introduce one of the other topics (e.g. spending) gently after some time.



Feivel2000

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Re: Using money from an investment account to pay down debt
« Reply #3 on: June 22, 2017, 04:02:14 AM »
OK, your mom likes to spend more than she makes. But does she spend more than what she makes plus their $64,000 yearly interest?

My guess is that you can't help them unless they directly ask for your help. Even if you could make them to consolidate some debts, they may just take on new debt since they are so accustomed to debt. And from what you had described, they probably feel 0 pressure to really change anything.

doublethinkmoney

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Using money from an investment account to pay down debt
« Reply #4 on: June 22, 2017, 05:42:31 AM »
They sound a lot like my parent minus the million dollar account, I think they have $500k. But my dad has a pension and social security that give him about 90k income per year. My mom works for $60-70k. They have a paid off house and cars (I believe) but my father always has credit cards he's paying on with a balance of $15k give or take. Honestly I don't encourage him to dump money on the cards bc he will jus rack it back up. What's the point? Yeah he's eating money but he would probably waste more if he had a zero cc balance tempting him every month. I have no idea what he spends it on, he says "bills" like home fixes and whatever. My mom like to spend a lot too. I swear she spent enough money in her craft room alone she could have retired now. I'll say she puts a lot away into her retirement so that's good.

Point is if your mom doesn't get her spending under control,  it's pointless to pay it off. They will just rack it back up and now they have less in the investment account and another balance. People like this tend to have a comfort level with debt and they usually won't exceed it. That's the only way they stay "in check" with spending. By removing it you give them free range again. Just my thoughts.


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