Great article on Consumer Debt, and the analogy to bailing out a leaking boat is a good one. My question: does it logically follow that cashing in EXISTING investments [to pay off consumer debt] is adviseable? I have been hesitating to do so, because the market is in a slump and I'm confident my investments will come back up. However, leaving it in the market is tantamount to investing with consumer debt, is it not? Were the market not down so much right now, it would be an easier choice. I have a feeling that if I were to "cash out" now just to pay off my debt, my stocks would be worth twice as much in X months when they recover. Wait for the market to recover, or pay my debts now?Thanks for your opinions,Ben
I think Tom and Dave would say is your goal should be to end up with the most amount of money after all of this (net of taxes remember). If your money is already in these investments, I would leave it there assuming these are still good investments (just because they are down doesn't necessarily mean they will come back). If you are going to earn more on the investment than the interest on the debt, knock yourself out. To be a Fool, you must have trust in your knowledge and research.I would say to leave the investments and concentrate any surplus money to paying down the debt. The investments would provide emergency cash or collateral if needed as well.
I am another that runs up a card bills wife and I both have one , (visa) charge about $1500 a month , will be going on $8000 worth of trips next few weeks ,fun type and all of that will show on cards . we pay them off at the end of every month .. spend less than $100 cash in a month . does this show up as a plus or minus in the crunched mumbers . 5 years ago it was the other way around like $100 on the cards ??
The solution to your question is relatively straightforward. Simply calculate where you receive the greatest return, or NPV. You can factor in probabilities for the market's recovery and in fact run a series of scenarios to help you decide. Also remember to include your tax savings from losses on your investments and sell the dogs first. Without doing the math though, it is my humble opinion that if you are carrying high interest debt (>9.99%) then pay it off. You can also try to roll-over the debt into a lower interest vehicle, say a home equity loan or even low interest creidt cards. The latter usually carry these low rates for only an introductory period so be prepared to roll them again.
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