Wiping out the debt
January 11, 2007 10:04 PM Subscribe
Is it better to pay off all my debts, or keep the debts and invest the money I would have paid them off with?
posted by Jimbob to work & money (24 answers total) 5 users marked this as a favorite
We're in a fair bit of debt. Nothing that we haven't been paying off - in fact we've never missed a payment - but it is a bit of a struggle to keep ahead. These debts include;
- A car loan
- Credit card
- Personal loan
- Laptop on hire-purchase
- A couple of other things; store cards, a stove on 12-months interest free
We've decided to sell our house - we don't live in it, I had to move cities for work, and the house we own is currently being rented out, and we are renting in our new city (at great cost). We are also losing money on the house we own, as our mortgage + council rates exceeds the rent we receive for it.
The profit we expect to get from selling our house will probably quite nicely pay off all our debts. This will leave us with no savings, but also no debt. The credit card can be stashed in the bottom drawer for emergencies.
The alternative is to keep servicing our debts, and put the profit from selling our house in some kind of investment, so when we want to buy a house some time in the future, when we've settled down at a permanent location, we will have a deposit.
Now intuitively, it seems to be the best idea is to pay off our debts, and start from scratch. After all, the interest we pay on our loans is greater than the interest we would earn if we invested the money. But is there something I'm missing? Are there any downsides, in my late 20s, to wiping the slate clean and starting with nothing? Will paying off all our loans actually negatively affect my credit rating? This might be a stupid thought, but if lenders can see that we paid off all our debts early, without making much profit for them, maybe they'll think twice about loaning me money in the future. Thoughts?