04-11-2015, 09:55 AM
(03-10-2015, 09:31 AM)rapidacid Wrote: Good question. Age old question, but good nonetheless.
From a quantitative, common sense, perspective what you laid out is the correct path: pay down if debt interest rate is higher, purchase equities if debt interest rate is low.
But with all of life there's a subjective quality as well: peace of mind. Paying down debt is extremely satisfying and head-clearing. Being debt free, if ever really possible, is the holy grail to clear thinking.
I doubt if you've spent months, years or decades being true to your goals of paying down debt you would immediately go bananas with your spending once you reached the land of No Debt.
Go with what allows you to think more clearly.
Its a question I ponder over on a regular basis.
Rapid raises some good points here. I like the idea of looking at the interest rates and tailoring the debt vs. investment funds appropriately.
While no one knows where we are in the economic cycle, the talk of asset bubbles worries me sometimes, even though I have come a far way to tune out the noise. Nevertheless, the all-time highs, debt loads, and the QE-and-Buyback fueled markets are concerning. A good thing about paying down debt is that it can be viewed as a guaranteed rate of return - as you know exactly how much you are getting for your money's worth when paying down debt.
We bought our house last year and one of the goals I have for this year is to pay down extra on our mortgage dues. This brings our end date closer, currently at 25 years-ish. Unfortunately, here in Canada, we do not have the luxury of getting a tax credit for home mortgage interest payments like the Americans (which Ive heard as an argument for not paying down extra on home mortgages in the US).