Minimize Low-Interest Debt or Maximize Expected Value?

This forum’s been a bit slow so I’m just stirring discussion up.

Say you have some reasonably low-interest debt (<=4%) and some disposable, steady income. Do you throw it at debt or invest it?

We mostly should know the investment is the higher expected value while the debt payoff is a sure bet. What’s your strategy?

Invest. My only debt (besides CCs that get paid off monthly, therefore not counting) is the mortgage. It’s already on a 15 year payoff. That’s fast enough.

the key to a successful life is to incur enough debt that you’ll die before you have to pay it off. It’s like free money.

There’s value in not having debt, so it sometimes makes sense to pay down low interest debt vs making more money “investing” in something else.

There’s also value in having a stockpile of cash earning next-to-nothing even though you may have some medium-interest debt.

Personally, my retirement accounts are invested rather aggressively, but I’m rather risk averse when it comes to cash-in-hand, so I’d keep the low interest debt and park the money in my Ally savings account…which now pays a whopping 50 bps (ooh…so does their money market savings…that used to be less than the savings account…I’m going to have to keep an eye on that).

I happen to know someone who is successfully doing that. It’s his way of sticking it to the man.

I once had a boss who was late 40’s with no retirement savings and he bought an extravagant custom-built house. He kept saying he should think about a 401k at some point!

your debt-free card is only one OD morphine shot away!

We do both (debt = mortgage). We started paying the mortgage down more aggressively in the last year or so simply because the end is in sight. so we’d like to be rid of it sooner rather than later. We send plenty to savings/investments too. I don’t feel the need to optimize every single financial decision in my life.

I’ve been hedging the difference. We have a 7/1 ARM with a ridiculous <2% rate that will balloon up to as much as 6% by 2027, so I’m intending to have it paid off in 10 years. Regardless, I’m hedging by contributing 50/50 between mortgage overpayments and non-retirement brokerage accounts.

Obviously investments are the better likely payoff, but I can’t wait to be essentially 100% debt-free, outside of taxes, etc.

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I play the long game. Keep the debt and Invest. Leverage is a beautiful thing when it’s working for you. My 70 year old self will thank me.

Even if your current residence has no mortgage, the tax man will still want his share every year, you’re indebted to him. As you point out, you’re never truly “debt free”. Situations might change and you’ll want to reside somewhere else. Having more assets allows you more options in that situation.

But then I’d have to reconcile with the whole going to die one day thing

I like debt free just from a psychological standpoint, but I recognize it’s probably not optimal but for some utility preference issues

That debate comes down to outside risks. The only argument for paying low rate debt down early is the possibility of loss of income. I’ve actually been incurring debt recently for house improvements. But this was with an eye to decrease energy costs and resolve future maintenance needs. It is lower return than investment but makes the house more comfortable to live in.

I think some of it comes down to the fact that this is truly disposable income. That extra principal payment is more like my version of a luxury vacation than an investment. I’m a boring person and it makes me happy.


That’s kind of why I’m splitting it 50/50… Once I have enough brokerage equity to pay it off anytime I please, I might feel more comfortable making minimum payments. Said equity could also go toward a nasty health crisis or something beyond a typical emergency fund. But paying the mortgage down early also gives me happy emotions.

I hate having debt. Any time I have collateralized debt I try to pay it off as soon as possible. The only way my house can be taken from me right now is if I don’t pay my property taxes which is a small enough amount that I should always be able to pay it. It has a cost but I’m not a savvy enough investor to be able to take real advantage of the difference between a mortgage interest rate and an investment rate of return. If I ever thought I could, I can always leverage the equity in my home at that time. In the meantime, I can live footloose and fancy free and not pay the banks one more cent.

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5% is sort of my demarcation line on debt. 4 to 6% is sort of hand wavy for me. Anything less than 4% and I won’t pay it off aggressively, anything higher than 6% and I will.

I’m at less than $50k at less than 4.5% average rate right now, and should be debt free in 2.5 years, so that’s something I’m looking forward to.

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I’m super aggressive on debt, hate having any of it. We refinanced at a 1.875% 7/1 ARM, so super low payments, but we are planning to knock the house out in no more than 11 years total so the adjustments shouldn’t matter. Feels great to see our monthly statements and having 90% of it going toward principal.

yeah, between that and socking more money into investments, I’d choose investments. No shame on those like you who would rather be debt free.

I don’t mind having debt if I have the capacity to eliminate it. E.g. if I have the assets to pay off a car in full, but can get a sub-3% rate? Yeah, I’ll take the loan. Depreciating asset makes it even better to have it tied to a loan, imo.

For sure, it’s the smart play as long as you’re stable. I got a little trapped into the ARM - we were at 2.75% for 15 years and refi’d into the 1.875% 7/1 ARM, planning to pay it off just a couple years after the 7 years. We thought we hit the dip in rates, but rates are still pretty low if you go for a 15-year. I’m worried it’ll rebound and stick us at 5% or something, so I’m paying it down for peace of mind. In 2030 I’ll be very happy to be fully debt-free outside of taxes.

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