What Type of Debt Is Considered High-Interest Debt?
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- เผยแพร่เมื่อ 10 พ.ค. 2024
- What Type of Debt Is Considered High-Interest Debt?
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FOO should be taught in school tbh. it would help so many young people to think of accumulating debt as setting themselves back and slowing their progress
Bring back home economics
I'd say high interest debt is debt with an interest rate that is greater or equal to the withdrawal rate for your investments. So if I plan to follow the 4% rule, then any debt with an interest rate of 4% or higher.
In terms of high interest it doesn't matter the type of debt, but the financial risk depends on the type of debt. If the debt is a mortgage then at least you are likely building equity and the value of the house might be appreciating. For a car you'll build equity, but the value might depreciate faster than you can build it. Credit card? It depends on what you bought, but in most cases there's no equity, just debt.
I have a 6% mortgage and for me it makes more sense to just pay the minimum and invest the difference in an index fund over the next 30 years in an after-tax brokerage. I’m pretty sure once I hit critical mass I can probably just write a check and pay off whatever balance is left on the house.
im right there with you at 6% mortgage, doing similar w/ the after-tax brokerage but i hate debt and i'd probably write it off in 15-20 years even though it's not 'optimal'.
@@classics-wz1bz makes sense, can’t put a price on peace of mind!
I consider anything with an interest rate that’s greater than six percent as high interest debt.
Can y’all do a video explaining the pros and cons of dividen investing and growth investing?
I believe that is a big grey area with not a whole lot of straight forward information on that topic.
Ryan Scribner did a video about dividend stocks last week that I found informative.
I would argue that an employer match may take priority over credit card debt - If the match is greater than the credit card interest rate.
My big question is how does the glide path look with their interest threshold? They say 6% in 20s and 5% in 30s. Surely it doesnt go down a full point on your birthday. Is 30 5.9% with a .1% per year glide?
I view it as a guideline to compare your different liabilities (which you should attack first) instead of a loan "going bad" at some singular point in time.
@Rastebb this is just a rough guide. You can do whatever you want with the details. Probably not worth spending much time thinking about it. A change of .1% savings even on 100k in debt is just $100 a year. So if you’re wrong and it’s not going to have a huge impact. Better to spend time working or learning something else which could make you thousands a year.
If the interest rate on your debt exceeds the interest rate in your retirement portfolio it should probably be considered high interest debt imo
I don't think there's a strong case to treat a 7% student loan as high interest debt but not a 7% mortgage. People often give the reply of "your home is an appreciating asset", but it's important to remember that once the mortgage is obtained, it's just a loan and isn't connected to the appreciation. The home will appreciate the same regardless of what you do with the mortgage. Mathematically speaking, two loans with the same rate, regardless of principal balance or what type of loan it is, should be treated the same.
I think Brian is correct that in the near future you can refinance to a rate that isn't considered high interest debt, and at that point you'd lower the urgency in paying it down. But while it is high interest I think there's a strong case for paying it down aggressively.
One difference is sometimes you never plan on actually paying off the mortgage loan, or at least outside of a lump sum selling it at some point
I just discovered this channel a couple of weeks ago and am wondering what's the story behind the 'This $1 beer cost me $88' beer coozie?
1.10^47 - making 10% for 47 years.
Spending $1 at age 20 robs your 65 year-old self $88 (assuming 10% annual rate of return). Great illustration of the power of compound interest/growth
Originally we bought a hundred or so to take to a college event my firm was recruiting at. Covid happened so they event was canceled and I started using them on air and giving to audience members that come tour the studio 👍
If you want to know more about the math… go to moneyguy.com/resources and check out our Wealth Multiplier 👍
@@MoneyGuyShow Oh, I've done that and then subsequently pissed myself off at how much money I blew back in the day, specifically to fund my gambling habit haha