Debt and investment question

uscgbeachbum · 10-25-2006, 02:44 PM

This is a question to all those investment gurus. I'm not exactly sure where I should put my "left over" money each month. I have an average student loan debt, car loan, and above average credit card debt. I'm thinking of start investing into some stocks. But I'm not sure if its necessarily the smart thing to do. I know student loans and car loans are considered "good" credit wise, but credit cards show the inability to manage your money wisely, etc. I have about half of my credit card at 7.99% fixed and the other half at 3.99% fixed. I'm wondering if taking the money I've been putting towards paying off my credit card and investing it through e-trade or whatnot is a wise choice. I already have a 401k plan through work but I'm only seeing about 4% for the entire portfolio. I know paying off the credit card will help me sooner, but the stocks will help in the long run. Oh, I'm also trying to pay off my car loan in ~ 3 yrs. Any advice?

[IVI] · 10-25-2006, 02:59 PM

Since your credit card interest rate is so low (7.99 and 3.99), I would suggest a mutual fund. This should give you better returns (in the 10% range) than the interest you're paying on your credit cards. After you start with mutual funds, then move into individual stocks because the funds will keep you grounded in case you take a loss on the stocks. Just remember than owning mutual funds does not show up on your credit report, so if you're looking to make your credit score better, it won't. I personally use E-Trade and am satisfied with it. You could also try www.sharebuilder.com if you don't have a large amount to invest right away. Most mutual funds start at $1,000 to $2,000. With Sharebuilder, you contribute a little each month and gradually invest in a certain fund or stock, much like your 401k.

mikepesikan · 10-25-2006, 03:00 PM

Pay off your credit card debt first, that interest would offset the better part of what an investment would gain you. Then
You need to consider long or short term, High risk or low risk, stocks are taxed at 33% (ouch). Most places are pushing the idea of making alot of trades cause thats where they make their money. Not many people actually get ahead with that strategy. You should be thinking long term with few to no trades.

[IVI] · 10-25-2006, 03:15 PM

Quote:

Originally Posted by mikepesikan

Pay off your credit card debt first, that interest would offset the better part of what an investment would gain you.

Not necessarily. His interest is only 7.99 and 3.99. A good mutual fund will get you 10% to 12%.

Normally, I would tell people to pay off their credit card debt first too. But these are people with 17%-22% interest that is really hurting them. I'd still put a little extra to the CC debt, but start investing as well.

I agree with mikepesikan that you need to think long term. You're only taxed stocks and mutual funds if you sell. So buy some and stash them away and forget about them for 20 years (but also review them frequently to make sure you don't have a dog).

uscgbeachbum · 10-25-2006, 03:21 PM

That sharebuilder site looks pretty nice. So basically, if you put in $50 a month and you want to buy some stock at $75 per share...you own 2/3 of one share? About the 33% taxes...when do you pay that? Only if you cash out and collect a check? Or if you roll it over into your "available funds" (assuming you're doing this through e-trade, etc.) and put it in some other stock? I've been in the same mindframe as you mikepesikan. Pay off what you owe since I "might" be able to beat my current interest rate and always have the option to lose.

***Mikey6p*** · 10-25-2006, 03:26 PM

Quote:

Originally Posted by uscgbeachbum

About the 33% taxes...when do you pay that? Only if you cash out and collect a check?

You pay it when you do your annual tax return

Capitol gains taxes suck.

mikepesikan · 10-25-2006, 03:34 PM

You have to consider the time value of money(Inflation)........if widgits are 1 penny each, today your dollar will buy 100 of them but in a year from now that same dollar will only buy 95. Inflation averages around 5% a yr.
If your mutual fund is earning 10% - 5% for inflation your really only earning 5% in a year. At best with your 4% credit card debt and earning 10% on your investment considering inflation your really only earning 1%. With fees and taxes your lossing money.

uscgbeachbum · 10-25-2006, 03:35 PM

Quote:

Originally Posted by mikepesikan

You have to consider the time value of money(Inflation)........if widgits are 1 penny each, today your dollar will buy 100 of them but in a year from now that same dollar will only buy 95. Inflation averages around 5% a yr.
If your mutual fund is earning 10% - 5% for inflation your really only earning 5% in a year. At best with your 4% credit card debt and earning 10% on your investment considering inflation your really only earning 1%. With fees and taxes your lossing money.

Hm...definitely something to consider. But with this frame of thought why invest if you have any outstanding loan whether its a car, home, student, etc?

mikepesikan · 10-25-2006, 03:55 PM

Thats a good question Usc, your best bet is to be debt free, which isnt allways possible.
All your debt is based on todays dollars, where your investments are going to be tommorrows inflated dollars.

dc1974 · 10-25-2006, 04:00 PM

IMO, don't invest any more money than you can afford to lose. Don't invest any money that you would need to pay off loans, buy food, pay the rent/mortgage, etc., no matter how good an investment may seem.

[IVI] · 10-25-2006, 05:50 PM

You will pay capital gains taxes on your annual tax return only if you sell the stock or mutual fund in that tax year. That includes selling and rolling the funds over in your account to purchase more stocks or funds and the amount you pay is based on your current income tax rate.

If you don't start investing now, you'll never start. You'll keep telling yourself you'll do it when you're debt free, which never comes unless you pay off your mortgage, pay off your car, pay off your credit cards and then don't buy anything else. For many people, that's just too hard to do. Start investing now with just a little bit, but pay down the credit card debt too. That way you're covering both bases.

I myself have a house, 2 car notes and credit card debt. But I also own a few mutual funds, some stock, a high interest bearing online savings account, and fund my wife's 403b. It's a good balance and it's all liquid in case I do get in a jam.

Civic4u · 10-25-2006, 06:30 PM

I can't escape debt. Everytime I got more money, someone wants it. Everytime I'm broke, someone want moneys.

10-25-2006, 02:44 PM	#1 (permalink)
uscgbeachbum Senior Member Join Date: Sep 2006 Location: Melbourne, FL Posts: 273 I laugh at ricers. iTrader: 0 / 0%	Debt and investment question This is a question to all those investment gurus. I'm not exactly sure where I should put my "left over" money each month. I have an average student loan debt, car loan, and above average credit card debt. I'm thinking of start investing into some stocks. But I'm not sure if its necessarily the smart thing to do. I know student loans and car loans are considered "good" credit wise, but credit cards show the inability to manage your money wisely, etc. I have about half of my credit card at 7.99% fixed and the other half at 3.99% fixed. I'm wondering if taking the money I've been putting towards paying off my credit card and investing it through e-trade or whatnot is a wise choice. I already have a 401k plan through work but I'm only seeing about 4% for the entire portfolio. I know paying off the credit card will help me sooner, but the stocks will help in the long run. Oh, I'm also trying to pay off my car loan in ~ 3 yrs. Any advice?

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10-25-2006, 02:59 PM	#2 (permalink)
[IVI] Senior Member Join Date: May 2006 Location: Columbus, Ohio Age: 31 Posts: 1,634 Bryan iTrader: 0 / 0%	Since your credit card interest rate is so low (7.99 and 3.99), I would suggest a mutual fund. This should give you better returns (in the 10% range) than the interest you're paying on your credit cards. After you start with mutual funds, then move into individual stocks because the funds will keep you grounded in case you take a loss on the stocks. Just remember than owning mutual funds does not show up on your credit report, so if you're looking to make your credit score better, it won't. I personally use E-Trade and am satisfied with it. You could also try www.sharebuilder.com if you don't have a large amount to invest right away. Most mutual funds start at $1,000 to $2,000. With Sharebuilder, you contribute a little each month and gradually invest in a certain fund or stock, much like your 401k.

10-25-2006, 03:00 PM	#3 (permalink)
mikepesikan Senior Member Join Date: Jul 2006 Location: N. Texas Posts: 410 iTrader: 2 / 100%	Pay off your credit card debt first, that interest would offset the better part of what an investment would gain you. Then You need to consider long or short term, High risk or low risk, stocks are taxed at 33% (ouch). Most places are pushing the idea of making alot of trades cause thats where they make their money. Not many people actually get ahead with that strategy. You should be thinking long term with few to no trades.

10-25-2006, 03:21 PM	#5 (permalink)
uscgbeachbum Senior Member Join Date: Sep 2006 Location: Melbourne, FL Posts: 273 I laugh at ricers. iTrader: 0 / 0%	That sharebuilder site looks pretty nice. So basically, if you put in $50 a month and you want to buy some stock at $75 per share...you own 2/3 of one share? About the 33% taxes...when do you pay that? Only if you cash out and collect a check? Or if you roll it over into your "available funds" (assuming you're doing this through e-trade, etc.) and put it in some other stock? I've been in the same mindframe as you mikepesikan. Pay off what you owe since I "might" be able to beat my current interest rate and always have the option to lose.

10-25-2006, 03:34 PM	#7 (permalink)
mikepesikan Senior Member Join Date: Jul 2006 Location: N. Texas Posts: 410 iTrader: 2 / 100%	You have to consider the time value of money(Inflation)........if widgits are 1 penny each, today your dollar will buy 100 of them but in a year from now that same dollar will only buy 95. Inflation averages around 5% a yr. If your mutual fund is earning 10% - 5% for inflation your really only earning 5% in a year. At best with your 4% credit card debt and earning 10% on your investment considering inflation your really only earning 1%. With fees and taxes your lossing money.

10-25-2006, 03:55 PM	#9 (permalink)
mikepesikan Senior Member Join Date: Jul 2006 Location: N. Texas Posts: 410 iTrader: 2 / 100%	Thats a good question Usc, your best bet is to be debt free, which isnt allways possible. All your debt is based on todays dollars, where your investments are going to be tommorrows inflated dollars.

10-25-2006, 04:00 PM	#10 (permalink)
dc1974 Member Join Date: Sep 2006 Posts: 96 iTrader: 0 / 0%	IMO, don't invest any more money than you can afford to lose. Don't invest any money that you would need to pay off loans, buy food, pay the rent/mortgage, etc., no matter how good an investment may seem.

10-25-2006, 05:50 PM	#11 (permalink)
[IVI] Senior Member Join Date: May 2006 Location: Columbus, Ohio Age: 31 Posts: 1,634 Bryan iTrader: 0 / 0%	You will pay capital gains taxes on your annual tax return only if you sell the stock or mutual fund in that tax year. That includes selling and rolling the funds over in your account to purchase more stocks or funds and the amount you pay is based on your current income tax rate. If you don't start investing now, you'll never start. You'll keep telling yourself you'll do it when you're debt free, which never comes unless you pay off your mortgage, pay off your car, pay off your credit cards and then don't buy anything else. For many people, that's just too hard to do. Start investing now with just a little bit, but pay down the credit card debt too. That way you're covering both bases. I myself have a house, 2 car notes and credit card debt. But I also own a few mutual funds, some stock, a high interest bearing online savings account, and fund my wife's 403b. It's a good balance and it's all liquid in case I do get in a jam.

10-25-2006, 06:30 PM	#12 (permalink)
Civic4u Senior Member Join Date: Jul 2006 Location: Humble, TX Posts: 6,668 iTrader: 7 / 100%	I can't escape debt. Everytime I got more money, someone wants it. Everytime I'm broke, someone want moneys.