Comments on: Investing Now vs. Removing Debt

By: Kevin T

Kevin T — Thu, 07 Jan 2010 01:48:32 +0000

This article is very enlightening. However, my students seem to be confused on this topic. Would you invest first in a business, say a franchise, and wait for the business to sell before paying off the debts? What’s your take on this?

By: MoneyEnergy

MoneyEnergy — Tue, 21 Apr 2009 17:24:43 +0000

In his case, it depends on how much debt he has on each of his liabilities and what the terms of repayment are. It might even make sense to pay part of each liability, or just the one with the highest interest rate. It’s really unfortunate that such a windfall would have to go towards clearing off debt, but he can’t avoid it. I’d pay off the debt that will most immediately give him the most leverage for further getting ahead. Which debt payment is most holding him back. If he’s still in the interest-free period on his loans, eg., then maybe just take care of all that credit card debt.

By: Tom

Tom — Sat, 17 Jan 2009 17:35:54 +0000

Agreed. I was always told that I should pay off my debts before I invest in the stock market. If I have a 13% APR credit card bill, it makes no sense to invest, especially in today’s stock market. Sadly, many college students fit that profile above.

By: The Passive Dad

The Passive Dad — Wed, 14 Jan 2009 07:33:50 +0000

I would personally pay down the debt first and then keep any remaining balance in cash. Heck, if your friend was in cash last year they would have out performed the stock market by 40%. I would also ask if your friend has experience choosing investments and if they also know they will have to pay taxes on any gains derived after the sale. Lot of things to consider. I would encourage them to look at a part time job or another source of revenue before investing the entire $10k.

By: Simon

Simon — Thu, 08 Jan 2009 03:18:48 +0000

Glad to see everyone is supporting the fact the debt removal is of utmost important.

By: PennySeeds.com

PennySeeds.com — Tue, 06 Jan 2009 12:09:26 +0000

I would use the bulk payment to clear that debt right away. If he really wants to get into stocks then he could try doing it in smaller chunks right now until he clears those burdens.

Have a small portion of your paycheck deposited into a savings account, and when it gets to a certain point buy some holdings.

I’m very against credit card debt though – So others may think differently.

By: Monevator

Monevator — Mon, 05 Jan 2009 15:41:18 +0000

I hate debt and would always pay it off first. There’s a psychological benefit as well as a financial one to being debt-free, whatever the maths says.

By: AJC

AJC — Mon, 05 Jan 2009 07:25:12 +0000

I created an improved version of Flexo’s Debt Avalanche, (which is already better than Ramsey’s Debt Snowball):

http://7million7years.com/2008/12/09/the-cash-cascade-tm/

In summary, it simply says to treat your debts as investments (i.e. INVESTING in reducing debt), then it becomes relatively simple to stack up all of your debts AND investment opportunities by their AFTER TAX ‘interest rate’ (earned if an investment, or saved if a debt), then it should be easy to put your money where you get the best return.

By: Chiko

Chiko — Mon, 05 Jan 2009 03:22:01 +0000

How much debt does he have? I guess it doesn’t matter too much. I would advice him to use $7500 towards his debt and use $2,500 on the stock market (penny stocks). For monday I am predicting that these penny stocks will go up (GRMC, NCTW, and SUTM) I might be buying some GRMC tomorrow for the day-trade.

By: Simon

Simon — Mon, 05 Jan 2009 03:03:18 +0000

@ Alberto: That is pretty the sum of what I told him.

@ Chiko: I agree but sadly, he has way more than $5,000 of debt. It would surely be a great time for him to enter the stock market if he had less debt.