You need to run the numbers to see what makes sense mathematically. As others pointed out there may be other implications like tax advantages and employment matching programs. In general though you should pay off any debt higher than (realistic) expected returns first.
Yeah. Market average is ~9% over all time, but I don’t see the market being ‘stable’ in the next eight years. Better to get rid of the guaranteed bad interest right now before putting stuff into the market for possibly more or less interest. It’s the safe option.
I’m pretty sure that’s not how that works. The math is the same on either side of the owed/earned determination.
If you start with 100$, and earn 10%, you now have 110$. If you owe 100$ and it earns 10% interest, you now owe 110$. This happens regardless of how much work that money is able to accomplish at the time.
Debts won’t grow with inflation, but the math ends up being the same anyways because the actual money amount remains constant.
More importantly, there is no guarantee of market inflation or deflation, much less a “hyper” version. The debt is a solid realised number. Getting rid of it is guaranteed money saved. Saving money in the market instead is a gamble against that debt, and not a guaranteed result, especially if you’re betting it on a less likely event such as hyperinflation.
*edit
And all of this is predicated on an either/or dichotomy. Really, if OP can, splitting between the two options based on their personal risk assessment is the better choice.
Right, but the purchasing power of that money is important. If a loaf of bread is $1000, $500 in interest isn’t as impactful as if a loaf of bread was $1. (At that point it’s basically the lender’s problem anyway)
The debt becomes cheap if inflation ramps up enough, but if the market is outpacing the inflation (big if), the money would be better kept in the market.
But you’re right about it not being a binary decision. If OP has multiple high interest debts, they’d be better using some money to pay down the highest interest debt first, while also investing/saving some.
Sanity check, I should pay off high interest loans (>7% APR) before I save for retirement, right?
You need to run the numbers to see what makes sense mathematically. As others pointed out there may be other implications like tax advantages and employment matching programs. In general though you should pay off any debt higher than (realistic) expected returns first.
Weird but, probably not. This is especially true if
Among other things
No. Save for retirement and pay off the debt. You’ll likely always have debt so it becomes an excuse to never save for retirement.
Yeah. Market average is ~9% over all time, but I don’t see the market being ‘stable’ in the next eight years. Better to get rid of the guaranteed bad interest right now before putting stuff into the market for possibly more or less interest. It’s the safe option.
Do not underestimate capitalists’ ability to make line go up.
But the hyper inflation will make the interest payments increasingly smaller.
I’m pretty sure that’s not how that works. The math is the same on either side of the owed/earned determination.
If you start with 100$, and earn 10%, you now have 110$. If you owe 100$ and it earns 10% interest, you now owe 110$. This happens regardless of how much work that money is able to accomplish at the time.
Debts won’t grow with inflation, but the math ends up being the same anyways because the actual money amount remains constant.
More importantly, there is no guarantee of market inflation or deflation, much less a “hyper” version. The debt is a solid realised number. Getting rid of it is guaranteed money saved. Saving money in the market instead is a gamble against that debt, and not a guaranteed result, especially if you’re betting it on a less likely event such as hyperinflation.
*edit
And all of this is predicated on an either/or dichotomy. Really, if OP can, splitting between the two options based on their personal risk assessment is the better choice.
Right, but the purchasing power of that money is important. If a loaf of bread is $1000, $500 in interest isn’t as impactful as if a loaf of bread was $1. (At that point it’s basically the lender’s problem anyway)
The debt becomes cheap if inflation ramps up enough, but if the market is outpacing the inflation (big if), the money would be better kept in the market.
But you’re right about it not being a binary decision. If OP has multiple high interest debts, they’d be better using some money to pay down the highest interest debt first, while also investing/saving some.
As mortgage rates are often above 7%, then also be cautious. One should not delay retirement savings for a 30 year mortgage payoff.
Are you talking credit card (so like at least 15% Apr) or personal loans?