Everyone has a different perspective on this but would love to hear yours. Someone has debt ranging say 4-5% interest rates. Do you attack debt more then investing to move towards a debt free life or do you go after investments since they return historically above that then paying down closer towards retirement. I know the latter looks better on paper but what about the psychological factors of being debt free and the guaranteed return on interest savings.

like
Posting as :
works at
You are currently posting as works at

Get rid of the debt......

like

Let’s here it I want to know your reasoning? Psychological or money driven? My net worth will be higher overtime IMO by focusing on investing and debt later. Curious your opinion why

Since this thread has shown the question regard OP, the answer is easier because OP knows themself. However, let me try to answer for the unknown client.

If my client is a serial debtor, that is, someone that cannot help themselves when it comes to wanting (buying), then I encourage saving more now. If the client is truly focused on the long term, then let them decide how much goes towards savings and how much for debt. Always have some go towards savings with a plan to invrease savings with every pay raise.

Sometimes you won't find out the client is a serial debtor until you update the new car & loan for the 3rd time in 3 years at which point you probably need to determine if you are keeping the client and how much more the client needs to save versus spend. Some serial debtors are salvageable if they are willing to save first.

likesmart

I made minimum payments on debt (mortgage and student loans) while maximizing investment contribution for the reason stated. As my income increased I started increasing the allocations to all 3 (quality of life, debt, investment). It wasn’t the result of some optimization function, just easy to keep the prevailing allocation. For bonuses I still put everything to investments. Eventually the debt was small enough that I just paid it off in a lump sum.

like

Can you refi the debt since interest rates are so low, but keep putting the same payment towards them? This will pay them down faster and allow you to put more into investments as well.

like

Do both, at that interest rate it's not terrible, and assuming you are on the younger side, early investing will help you considerably if you factor in lower current income with Roth contributions.

I don't think it's an either/or situation, but if you had CC debt at 20%+ then you would pay down debt

like

All the more reason to invest, max out a Roth now while your 23. You *should* make more and be at a higher tax rate later in life.

Some of it is phycological but at 60 you won't be thinking "I'm glad I paid that debt off 30 years ago" you'll be saying "I have X amount in a tax free account, woo hoo"

Just my opinion. You can definitely argue it different ways

like

Every Financial decision like this has to be considered in terms of both "Economic Sense" and "Peace of Mind Sense". As advisors, we can not determine which one makes more sense for the client. We can help the client look at the big picture and by talking about the concerns, and benefits the the client must often trust their gut on which is more important to them. Personally I prefer to invest and at some point take that money off the table to pay down debt. When the debt is a mortgage, we have to consider the bigger tas advantage of paying more interest for a longer period of time. As an advisor, we must not imply that our investment skills will out perform their current debt's interest (4-5% in your example) because that would imply we are saying past performance equals future performance.

like

The hard part is there is no right or wrong answer. There is a right answer on paper but it’s hard to measure the decisions we make/miss from
The psychological part

It’s a great question and the answer will be somewhat based on their age, goals, history with spending and debt, reserve amounts etc. I tend to advise clients in general to build emergency money first. Then split contributions between debt and investing since they are both important. I also find that debt manages to show up again in the future so if you don’t make investing a priority you will end up with not much in the end. If all goals are being funded and reserve are set up then I could see throwing addl cash flow to pay off debt, if nothing else but psychological freedom as you said. Not sure if that helps.

like

That really does. In school I feel that we were taught debt is good and focus on investments. Great point, my thoughts so far I think is making a shift. I am 23 so I think from these conversations for my example I will continue doing 8,400 towards Roth IRA/401k and anything past that and HSA goes to debt.

Also working through the emergency fund in a great place to

like

Interesting. Put the numbers off to the side. Do you feel that having that debt burden held you back from taking on career risks?

Yeah great point. Maybe I’m trying to get to get to a point but not asking the right questions to myself on why I feel I need to pay it down

Unfortunately I cannot. The debt is in student loans and I do not have a house to use for equity to refi into.

So in my head that leaves the decision do I accelerate my debt payoff or do I focus on investments.

Either way will still max my Roth IRA but after that I was doing Roth 401(k) due to age. But trying to decide if I should throttle down that and focus more on debt

One factor that hasn’t been mentioned is that this is student loan debt, which is nearly impossible to discharge. Maybe you don’t put all your extra cash toward it, but I think getting rid of it faster would make you feel better (based on all the information you’ve shared.)

Personally I made the career leap here BECAUSE all I have is a mortgage (made the change when I was 34.)

Wow awesome to hear. All I have is student debt. I think I can max my Roth IRA and still pay that off in 5-6 years.

Focusing on a heavy emergency fund build up to in order to feel comfortable making shifts as well

Related Posts

like

Received this bottle as a gift and pretty stoked to try a first fill edition. Anyone else had it?

Post Photo
like

Does McKinsey also have the same independence requirements as all big 4s?

funnylike

What’s up with Saatchi and Saatchi Wellness these days? Still eh or are things looking up?

like

I work with kiddos that have multiple disabilities K-6. Our district is doing distance learning. Yup, computer learning for students who may or may not be able to see, walk or talk. I was wondering what other teachers are doing for their kids who are in this situation?

like

What can I have delivered in India to a household where a funeral is happening? Is it white flowers there too? I don’t know if they will want a bunch of fruit. What is the custom?

Who tf is causing these trash fires in Austin I got 5 notifications today and it rained last night.

like

Hi all, Is 24 L fixed a good salary for
9 years of HR Business Partner experience from a Tier 1 B-school

like

Is your school using the Open Up curriculum or is already using it? On a scale of 10, to what fidelity are you implementing the curriculum? What are it's strong points? What are it's pain points?

like

Hello Fishes,

Recently I have posted my honest bad experiences in TCS.
But a loyal TCSer countered my comments and talking meaningless things.
Please find the attached screenshots and kindly provide your valuable comments.

Post Photo
like

I’m about to receive an offer from Optum at Grade 27, YOE 4.25, Tech Java. can someone help me with reasonable pkg i shall ask for?

Who invested in Melvin capital? With a short based HF, do you have to be another big fund or firm?

like

What is the scope after MS in Pharmaceutical/ health care management in USA. I am a pharmacy graduate and have been working as a quality control analyst in lab, I wish to switch my department and am looking for MBA-Pharmaceutical management or MS in healthcare management in USA. what is the scope of these fields in the states.

like

Can anyone refer me .I have 2 yrs of experiemce .Skills- java,sql,sprimg boot,testing

like

Personal Capital Cash at 2.30% APY looks like a solid deal for high-yield savings. Has anyone tried it?

Currently with Discover Premium Savings at 2.10% APY and seriously thinking about switching.

like

I am currently looking for a mentor and not sure the best way to approach finding one. Any advice?

like

Hi I need referral for Harman . Can anyone help? Tech stack - react native , team lead / architect. Can someone help ? Thanks

like

I am so constipated! These hormones and craziness for IVF. Help! I can’t be the only one. What do u do? 

like
likefunny

Additional Posts in Financial Advisors

What is that one quality you demonstrated at work that differentiated you from others and made you successful/climb up the ladder?

likesmart

What car is you (your family�s) daily driver? Not a car guy post just genuinely curious what people drive around and if they like their vehicle

like

Does anyone else hate prospecting and rely on referrals? Cold calling is so miserable 😩

like

Sometimes I’m wondering is it because I’m not efficient enough or it’s just too much work.

like

Searching for a hypothetical tool. I use them quite often. JP Morgan funds had the Morningstar hypo on website and now gone. I called and they confirmed it was gone. Anyone know of another one?

like

Nothing sexier than a guy with a close cut, manicured beard. No turn off worse than an overgrown, unkempt beard. You're welcome.

like

I am seeking Financial Advisors with established books who would like to explore independence. Independent Registered Investment Advisors (RIAs) are professional independent advisory firms that provide personalized financial advice to their clients. We are registered with either the Securities and Exchange Commission or state securities regulators. Independent advisors are trusted with over $5 trillion of their clients’ wealth. All queries will be held in strict confidence.

like

When you revisit a client and their portfolio, what kind of process do you have?

like

Anyone else hate banking lingo and make fun of it, but as soon as a discussion starts you say "we dont want to boil the ocean here". Fml. Whats your most despised finance phrase?

like

Too early to tell whether to short on Vanguard Energy ETF.

like

Does your office use any type of instant messaging If so, what and how do you archive it?

like

This is the craziest job ever. I’m less than one year in and I get no leads given to me. I’m an indy FA (S7, S66, and life + health licensed) I am constantly looking for new prospects to the point I want to rip my hair out, but then I’ll have days like today where I’ll make 20k in one day and think this job is a joke. I really need to learn how to prospect better. I’ve made 150k in my 7 months as an advisor, I’ve made 29 new clients in that time and am looking for a way to streamline prospecting

like

Have a slight fever but we're running a workshop with clients tomorrow. Advice?

like

How many times do you follow up with a prospect before you accept it's probably not gonna happen?

like

When your PC decides to install automatic updates just as you're about to host a prospect...

likefunny

Anyone switch their book from commission to fee only? Just curious how it went. Considering it myself.

like

I’m a little paranoid, but does Edward Jones have the ability to look and monitor what we do on our phone when we have the “Gateway” app setup on our phones?

like
like

When picking between two excellent candidates for an open job, what is the determining factor that pushes you toward one over the other?

like

How do you handle people negatively reacting to you leaving for a better opportunity after years of positive performance at the current firm?

New to Fishbowl?

Download the Fishbowl app to
unlock all discussions on Fishbowl.
That was just a preview…
Sign Up to see all discussions
  • Discover what it’s like to work at companies from real professionals
  • Get candid advice from people in your field in a safe space
  • Chat and network with other professionals in your field
Sign up in seconds to unlock all discussions on Fishbowl.

Already a user?
Login here

Share

Embed this post

Copy and paste embed code on your site

Preview

Download the
Fishbowl app

See what’s happening in your industry
from the palm of your hand.

A phone with Fishbowl app

Send download link to your phone

OR

Scan your QR code to download
Fishbowl app on your mobile

By continuing you agree to Terms of Use and Privacy Policy.

Messaging rates may apply

Download app

Sign up for free to view this conversation on Fishbowl

By continuing you agree to Terms of Use and Privacy Policy

Already have an account? Log in

Sign up for free to continue using Fishbowl

By continuing you agree to Terms of Use(New) and Privacy Policy(New)
Messaging rates may apply