The other thing with personal debt is that the more you have, the harder it is to borrow more at reasonable rates. They've gotten very aggressive about debt to income ratios in the past few years.
Yes, you are right Noreen. It's right to pay down credit cards and auto loans.
And you are also right that paying down debt is never a bad thing, because it does make you feel better. Emotion counts.
Re: Suzy Orman would be proud
Dex
3/2/2012 12:27:30 PM
I'm going with Noreen on this Scott. The only time I feel comfortable taking on debt is when I have assets to offset it, like those companies you cite. If I have more debt than equity, I don't care how cheap the debt is. It weighs me down and no I'm not counting my mortgage.
Yea, that's all well and good. But it seems to me that few people think of paying down a mortgage when you say "debt." More often, they mention credit cards or auto loans. Sometimes the rates on the auto loans are pretty low -- but those teasers on credit cards are usually short, and the rates (even with good credit) are high.
And take student loans: despite today's low interest rates, you know what rates they are offering on education loans? Fixed rate loans are going for about 8.5% (for good credit). Variable rates start around 3.5%, but they rarely offer that best rate. they know students are desperate, rarely read all the disclosures and take advantage of them (and their parents). Plus the paperwork is worse than a mortgage app.
So dumping some of that debt is a good thing, both emotionally and financially.
Ironically, financially, paying down debt may actually be the worst thing you can do right now. Some of the most savvy financial types are taking on MORE debt. Why? Cause it's so cheap!
What do I mean? Well, there are many hedge funds that are borrowing at low rates and putting the money into higher-yielding bets. This is known as the "carry trade."
Or what about Microsoft? Microsoft for the first time ever started issuing debt in the past couple years as rates got so cheap.
So why would you do this? Simple -- you think that rates are unnaturally low and you want to take advantage of it.
Of course, it's tricky for individuals. They should pay off debt if it's adjustable-rate debt or high-rate debt like credit card debt. But you should NOT pay down a fixed mortgage if it is at a rate under 4 1/2%. Remember, the Fed is trying to create lots of inflation. They have the same problem you do: Too much debt. They want to be able to pay off that debt down the road in depreciated dollars which is why they are doing everything to pump some inflation into the system.
Imagine the dollar depreciates 20% over the next five years (actually, the dollar has been depreciating at this rate for 20 years). If you keep your debt fixed, your debt load will essentially be reduced by 20% with inflation.
Re: Suzy Orman would be proud
Tenacious
3/2/2012 10:32:17 AM
The survey said "pay down debt." It did not suggest any of that was delinquent debt.
I think it suggests that we're a prudent bunch of investors, who want to pay down debt no matter how reasonable the levels are in comparison to the norms -- so we can be even healthier consumers of those advertised products!
Re: Suzy Orman would be proud
Broadway
3/1/2012 3:48:59 PM
Noreen, does this mean that most of Investor Uprising's readers are up to their necks in Greek-like debt? Next time you do a poll like this, get some socioeconomic figures from your respondents. Otherwise, you might start scaring off some potential advertisers from your site....after all, who wants to advertise to a bunch of deadbeats ; )
Re: Suzy Orman would be proud
tokyogai
2/28/2012 4:04:17 PM
I agree. Some stability and good news on the economy will probably skew these numbers quite a bit.
Re: Suzy Orman would be proud
ProfR
2/28/2012 12:35:38 PM
It is not surprising that paying down debt came first. It is logical to do that before giving to charity, etc. An interesting question would be what would you do next? If you got your debt to zero or at least a "reasonable" level what would you do then?
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