| Debt (& Credit) vs. Investing |
|
|
|
|
|
| Which is the main priority for your finances? |
| Having Good Credit |
|
2% |
[ 1 ] |
| Paying off Debt |
|
32% |
[ 12 ] |
| Saving Money |
|
8% |
[ 3 ] |
| Investing (Financial Growth) |
|
43% |
[ 16 ] |
| Investing (Retirement, 401k, IRA, etc) |
|
13% |
[ 5 ] |
|
| Total Votes : 37 |
JBendar
Senior Member
Cash: $ 49.60
Posts: 271
Joined: 22 Mar 2004
Location: Woodbridge, New Jersey
|
| Re: Debt (& Credit) vs. Investing |
 |
|
quote:
Originally posted by 1mil
Hello Money Talkers
I hope you are all doing well!  From some of the posts I read there seem to be a lot of knowledgeable people here! So I'm looking forward to share ideas about money and finances with you all!
This is my first post, so let me get str8 to my inquery..
The idea is quite simply should you invest while you have debt (and not so great credit)?
But let me give you some background info.
I am senior college student in engineering, and I have two student loans, one for about 20K$ and the other for about 10K$
I have a full time job and make about 68K$ before taxes.
The past few months I've been making payments on my 10K$ loan and its down to about 6K$ now, but then I thought  , you know, 4000$ is a lot, what if I invested that money instead of paying off my loan right away? Maybe I could earn money off my investment and pay back the loan with that.. but not having any experience in investing theres no way I can know if this is a good idea.
The other thing Im concenred about is my credit. I dont have much credit history, with the loans, and a blemish -- this will obviously make it difficult for me to get a loan for a car or a house.
I want to buy a house next year, but I'm not sure if thats realistic (I dont want to waste anymore money renting  )
I have a brokerage account open with an intitial deposit in, but I havent done anything with it...  Pending a final decision on what is the best thing to do with my income right now.  My Job doesnt currently offer 401K, but I thought I should have one anyway, or an IRA...
Oh I also have a phat tax return ($2k) this year! and I thought  hmm.. new car? save? invest ?
So to recap :
+ Student Loans
+ Poor Credit (Not Horrible just poor)
+ Nice Income
+ Phat Tax Return
+ Want to Invest and Buy Real Estate
+ Maybe a Car =)
What to do?
Your guidance and experience is invaluable!
Student Loans - Continue to pay off these loans as soon as possible.
Poor Credit - You can change this by paying off your loans and limiting your credit purchases.
Nice Income - Making the salary you stated above, you should be able to pay off your loans (try starting to pay off the higher loan a little at a time, and you will avoid high interest added on.)
Invest/Real Estate- You stated you already have a deposit in an investment account. Get it working for you! Check out www.barchart.com for ideas. Avoid Real Estate at this point, unless you want to dig a deeper hole for yourself.
Maybe a Car - If you have a car now, stay with the one you have. Don't get into further trouble by taking on car payments. 
JBendar
|
Wed Apr 05, 2006 5:50 pm |
|
|
JBendar
Senior Member
Cash: $ 49.60
Posts: 271
Joined: 22 Mar 2004
Location: Woodbridge, New Jersey
|
| Debt & Credit vs. Investing |
|
|
It is O.K to have an investing account even if you have debt. Just don't buy things on margin (credit). It looks as though you will have no choice very soon other than to buy a different car. Try to keep your expense of the car purchase to the minimum you can see your way clear. As far as buying a home, you may encounter problems if your credit is poor. Even though you don't want to rent any more, you may have no choice until you can reduce the amounts you owe. Hope this helps you.
JBendar
|
|
Wed Apr 05, 2006 7:35 pm |
|
|
Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
|
The interest rates on your debt determine the route you should take. Since they are student loans (Sallie Mae?), they should be low. If so, don't pay them off early; instead, invest the money AND MAKE IT GROW. The best system is to make money off of other people's money and carrying GOOD debt is one way to do this.
i.e. If rate_investing > rate_borrowing {invest}
Additionally, having assets (investments) demonstrates a capacity to manage money and will offset your report's blemish. Also, having assets makes you less of a risk because...you have assets! (I've personally experienced this.)
re: margin. Bad advice. Margin is an effective tool if used properly and partially. Never fully margin unless you have the cash to back it up. (Yes, I personally experienced that too.)
"Expect me when you see me."
|
|
Thu Apr 06, 2006 12:57 am |
|
|
Avino
Preferred Member
Cash: $ 24.80
Posts: 117
Joined: 27 Mar 2006
|
|
|
|
Hi,
Just to let you know im in the same situation as you, Im a senior, about to graduate in May, I have about $50k in loans to pay back, and the interest rates are in the 4-6% range for the loans, I plan on consolidating the higher loans into a lower rate loan, but I also have a good 401k through my employer, and my 401k has made 33% in the last two years, and about 14% over the last 5, and the student loan debt is manageable.
My brother graduated as well from college with the same amount of debt more or less and pays back about $400 a month. So i figure if I use what I make to invest as much as I have in my 401k outside the 401k, I can then use the money made there to help pay off the loans. I have a job for post graduation and low monthly expenses (provided I stay single and don't get married), so I can make heavy investments with my income over the next two years and hopefully that will then help pay off my loans. My reasoning is instead of paying back the full $50 k right away, make the monthly payments and invest the rest, and hopefully by the time I have 25K - 30K invested, that will make enough to help me pay the loans. I don't yet know how viable it is, since Im pretty new at investing, but being on here has defenately helped.
~A.
Also blogging @ avinos2cents.blogspot.com
|
|
Thu Apr 06, 2006 4:17 pm |
|
|
Avino
Preferred Member
Cash: $ 24.80
Posts: 117
Joined: 27 Mar 2006
|
quote:
Originally posted by 1mil
Rolo great points. I believe my interest rate for my student loans is like 4%, but what (non-retirement type) investments do you know of that have a similar ROI?
What do suggest I do with my tax return?
ING direct savings plans offer a rate of 4%, but obviously you want to make more than that, so if you don't know much look at various mutual funds, and research what they hold, see if you recognize those companies, if not look them up and take it from there. I like to read the business section of the paper every morning and that alone has helped orient me a bit, the Financial Times, the Wall Street Journal and the business sections of local newspapers may be good sources. Then you can start picking individual companies to invest in, etc. If your unsure what to do with the 2k, put in in a savings account in the meantime while you figure out what are some good investments.
~A.
Also blogging @ avinos2cents.blogspot.com
|
|
Thu Apr 06, 2006 4:30 pm |
|
|
Offshore-Wealth.com
Senior Member
Cash: $ 14.80
Posts: 601
Joined: 20 Jul 2005
Location: FREEDOMLAND
|
| 00-DEBTS |
|
|
quote:
Originally posted by 1mil
Thank you so much for the replies.
I plan on/have already begun doing all the things you've mentioned! So thanks!
I am still stuck on what to make my priority. Should I focus on paying off my loans before I try to invest? Or is investing ok to while I still have debts?
Is it realistic of me to try to get a house next year?
My car has 205000 miles. I'll need a new one soon.
I have all this money coming in, where to put it though??
Interesting,
Most financial advisors will tell you to pay off debts first, and I agree. The reasons are obvious since debt interest rates are usually far greater than most people will earn investing. How many average people can generate more than 18.5% which is what most revolving credit costs us. If you can, then you are above average, so you have to weigh the two to see which will produce more for you.
If you were to know what the average American owes in credit card debt, you would understand why 80% of the population has no savings. The average person is in deep debt and pays the minimum monthly payment which will take 17 years to pay off for average person, so you see the problem. Debt sucks, plain as it gets, and the sooner you get out of debt, the better off you will be. Credit card debt is costing the average person over $10,000.00 in interest, so how long would it take to earn $10,000.00 in an investment?
Good luck to all, Mike
FREE PAY IT FORWARD OPPORTUNITIES
http://ENVIROPURELIGHT.com
http://FREE100KSECRET.com
|
|
Fri Apr 07, 2006 11:33 pm |
|
|
TeenInvestor
Full Member
Cash: $ 16.40
Posts: 77
Joined: 06 Jul 2005
Location: Minnesota
|
Depends on the amount of debt and the interest rate of the debt.
|
|
Sat Apr 08, 2006 4:21 am |
|
|
Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
|
|
|
|
quote:
Originally posted by 1mil
... interest rate for my student loans is like 4%, but what (non-retirement type) investments do you know of that have a similar ROI?
Cheap money...fix'em at that rate if you can.
Stock market average return since 1925 is ~11%...much higher than 4%. Another important thing about investing is that the longer you invest, the greater the chance for success...and the better you get at it.
Top-quality mutual funds will outperform the average (why buy average?). If you get your hands dirty and spend some time meticulously investing, you can potentially beat the averages by far more, if you are so inclined.
As Marotta's article pointed out, a five-year wait will generally HALVE your retirement.
quote:
Originally posted by 1mil
What do suggest I do with my tax return?
Emergency cash if you don't already have it...into a money market. And it is for EMERGENCIES ONLY...not "oops...I spent too much this month, I need some reserves". (I just saw somebody do this...completety depleated reserves because of negative cash flow...I hope he doesn't have an emergency!)
Otherwise...invest it...be a good kick-start to get your portfolio off the ground.
You have until April 17th to fund LAST year's IRA if you haven't done it already.
"Expect me when you see me."
|
|
Sun Apr 09, 2006 2:27 pm |
|
|
JCook
Full Member
Cash: $ 11.20
Posts: 56
Joined: 24 Jan 2006
|
|
|
|
+ Student Loans
+ Poor Credit (Not Horrible just poor)
+ Nice Income
+ Phat Tax Return
+ Want to Invest and Buy Real Estate
+ Maybe a Car =)
Here is what I would do.
Pay off the debt with with everything I have leaving just enough in savings for emergencies. (about $1,000)
Not buy anything until I'm out of debt except for a cheap car if completely necessary.
Not worry about 401k's or IRA's until out of debt.
You are making good money so you should be able to knock this out quickly if you put your mind to it. You can then start saving for a down payment for a house and start your retirement savings. Get rid of the debt and then you can start working on saving and investing. I wouldn't try to do too many things at one time and I wouldn't worry too much about credit scores yet. Once your debt is cleaned up, you continue to be employed, you have paid rent faithfully for a few years and you have saved up a good down payment, you can buy a house.
(Should have clarified this) Once you are out of debt then you should up that emergency fund up to the 6 month amount. Thanks for the reminder.
Last edited by JCook on Thu Apr 13, 2006 2:27 am; edited 1 time in total |
|
Mon Apr 10, 2006 3:02 am |
|
|
Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
|
quote:
Originally posted by coaster
Just plugging in the comment that most financial advisors recommend an emergency fund equivalent to six months' living expenses. (Expenses, NOT income.) This should be held in a liquid risk-free investment.
Yup!
Also, henceforth, you should have about 1/3 of your income left over after everything is spent/paid; do max your IRA and 401(k).
"Expect me when you see me."
|
|
Mon Apr 10, 2006 12:33 pm |
|
|
go2self
Preferred Member
Cash: $ 26.45
Posts: 129
Joined: 06 Aug 2006
Location: hawaii
|
Don't be lured by the rate comparison to make your decision.
The real factor to consider is amount cash going out to service debt versus the amount of income returned from investment.
If your investment returns (dont forget fees and taxes) cover or exceeds the cost of debt service then invest.
If your investment return does not cover the debt service then reducing the debt service (reduce debt) until an equilibrium allowing you to invest in comfort is a reasonable approach
Time is our most volatile resource that if not used immediately is lost instantly
Last edited by go2self on Sun Aug 06, 2006 9:14 pm; edited 1 time in total |
|
Sun Aug 06, 2006 8:56 pm |
|
|
go2self
Preferred Member
Cash: $ 26.45
Posts: 129
Joined: 06 Aug 2006
Location: hawaii
|
Not theory, actual practice.
Annuties, CD's and other liquid investments produce predictable returns,
risky ventures require a comfort margin called "I can afford to walk away if I lose it"
other predictable investments include tangibles such as real estate, colletibles, art ...
other unpredictable investments include currency, stocks, education...
Time is our most volatile resource that if not used immediately is lost instantly
|
|
Sun Aug 06, 2006 9:16 pm |
|
|
El Presidente
Full Member
Cash: $ 13.85
Posts: 69
Joined: 22 Apr 2006
Location: Colorado
|
|
|
|
quote:
other predictable investments include tangibles such as real estate, colletibles, art ...
quote:
I still wouldn't call those predictable because the value fluctuates.
My dad always says that it will be worth something one day as an excuse not to throw things away. Of course, the only way I could interrupt this is old stuff = worth something. I think he is right. By the way, anyone want to buy some $300 10 year old string?
I think collectables is a poor way to go. It requires specialized knowlage to get into, and there is a strong tendency to get an emotional attachment to your collection. This means the likelyhood of actually selling these prize pieces is not very high. This creates a trap where money keeps going out and none comes in. My friend's uncle tried collecting fine wines and died in debt because he kept buying wine and never sold any of it for a profit. Also can be difficult to sell items for what it is "worth", especially if you have to raise cash quickly an emergency.
|
|
Thu Aug 10, 2006 12:30 am |
|
|
ProudMars
Member
Cash: $ 2.10
Posts: 10
Joined: 18 Oct 2006
Location: Cambridge, MA
|
| Take Internet Marketing as a hobby! |
|
|
Learn internet marketing. Don't need to invest more than a few bucks. Internet marketing as a hobby will help you make more money than your regular job may.
|
|
Sun Nov 19, 2006 2:19 pm |
|
|
|
