Paying Down Debt vs. Buying Gold

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Jesse's picture
Jesse
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Paying Down Debt vs. Buying Gold

Ok, so let me first apologize if this seems like a silly question - I've only recently stumbled into this whole thing and am still trying to wrap my mind around it all.

I have spent the past year drastically reducing my credit card debt - down from $12,000 to $3,500.  I still have about $25,000 in student loans hanging around my neck.  Because I've been agressively pouring my earnings into paying down my debt, I have no savings to speak of.  I am a renter.  My question is this:

At what point do I shift my focus towards saving (gold/silver) instead of paying down debt?  When the SHTF, which I believe it will (it's just the degree I'm unsure of), what makes more sense - to have a debt noose around my neck but some coins in my pocket, or the ability to breathe while broke?

golsbygolf's picture
golsbygolf
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Re: Paying Down Debt vs. Buying Gold

Debt makes people do things they normally wouldn't do.

Brainless's picture
Brainless
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Re: Paying Down Debt vs. Buying Gold

Edit: i have to add to this post that paying of your creditcard debt would be the best thing to do, the interest rates are redicilously high. Your student loan, i see no problem just paying the minimum requirements.

Debt gives people choices they otherwise would not have. :)

I think when SHTF happens it will be sudden. However i think it will not happen tomorrow.

If i were in your position, mm wait i am in your position. :), I would buy gold and leave some debt. In my case it is 50/50.

Now 2 scenario's 1 SHTF, 2 SnotHTF.

1 There will be a high inflation, not necessarily hyper. In that case good because your debt will be easily paid of with only a little bit gold.

2 Everything is starting to get better and the outlook is that we are getting through this crisis without too much damage. Sell your gold and pay off the debt.

So, i could not see where buying gold, and wait with paying of your debt is bad.

Please others tell me why this is wrong,except the little more interest you pay of course.

 

joe cissell's picture
joe cissell
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Re: Paying Down Debt vs. Buying Gold

Jesse,   First, I want to say," Great Job" with paying down your credit card debt.  The rates on most credit cards are from 9 to 23%.  The quicker you can pay these off the better.  Ideally, if you have to use a credit card during a particular month strive to payoff the balance in full each month.  Your student loans on the other hand are probabaly longer term and a much more managable interest rate.  Make sure you make the payments on time amd as agreed.  I would also contact all your lender on credit card and student loans to find out if there are better rate you can refinanace into on the balances.  But,  be aware of additional fees that may be charged for the refinanace service.  Without talking to your lenders first you will not be able to make a good decision.

I would much better be debt free with great credit and without a few " Gold Eagles" in my pocket for now.  After you have built up a little more saving you could look at putting a little savings into a precious metal such as gold or silver.

Also, a good math rule to remember is the "Rule of 72"  .  Example:   you have $100 dollars and earn an interst rate of 5 percent per year.  you divide 72/ 5 =  14.4.  That means every 14.4 years your $100 dollars double to $200.  This formula can be used for any rate of return you have. 

Keep up the good,

Joe Cissell

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pwoody82
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Re: Paying Down Debt vs. Buying Gold

If you have a good payment history, call the credit card company and ask for a lower rate. I have spent the last 3 years getting to where I have only my mortgage left and have used two methods to do it.

 

First, if I thought my rate was too high, I simply called and asked for a better rate. I got it more than once.

Second, I kept getting these 'transfer your balances' offers and pay no interest for 6+ months with a 3% transfer fee. I used several of those and essentially got the money for 6+ months at 3%.

 

Do not be late or miss any payments because that will get you an automatic rate increase. As far as putting money into gold or precious metals, you can do that in little pieces. Get an Ebay account and bid on gold and silver there. I have picked up some by simply bidding spot + 10-15%. You will miss more than you get. Concentrate on coins or bars whose auctions expire after 10:00 pm and before 8:00 am when most people are in bed.

 

There is a technique that you can use, but you have to be up when the auction expires. Open a window into Ebay and select something that is still priced below what you are willing to pay. Then open a second window into Ebay and go to that same item. In the second window set up a bid based upon the spot price of the gold or silver content plus your selected amount over spot. Take it to the point where all that is to be done to complete the process is to click 'submit bid', then switch back to the other window. Keep refreshing it until there is less than one minute left before the bid expires. At that point, use the second hand on your watch to watch the last minute count down. Switch back to the bid window and when there is less than 20 seconds left click submit and submit your bid. That way there is no way someone can place another bid because time is too short. It is a one-shot roll of the dice, you win or you don't. My experience is that I would get about 1 in 10. This method also removes the temptation to keep uping your bid which is a mistake. Whatever it is that you selected to bid on, there is probably 100 more out there just like it coming up soon. Remember to take shipping and insurance costs into account when making your bid, since they are part of the cost. Try to work only thru paypal for your protection, you will need an account, and watch out bidding on something when the seller has a less than 98% approval rating for at least 100 transactions. Good hunting.

 

pwoody

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SteveS
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Re: Paying Down Debt vs. Buying Gold
pwoody82 wrote:

 Get an Ebay account and bid on gold and silver there. I have picked up some by simply bidding spot + 10-15%. You will miss more than you get. Concentrate on coins or bars whose auctions expire after 10:00 pm and before 8:00 am when most people are in bed.

pwoody

 I'm curious why would you buy gold this way rather than through a dealer? They sell gold at only 5% or so above spot, and that is usually with free shipping and insurance. Of course they have minimums; is that it? What kind of gold are you buying on ebay?

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pwoody82
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Re: Paying Down Debt vs. Buying Gold

There are several reasons for not using a dealer at present, but the main one is that they are mostly sold out. The second one here in New Mexico is the roughly 7% sales tax that you have on top of the purchase price. Also, in the current environment, the premiums I am seeing over spot can range from 15 to 50% depending upon how short they are of product to sell. It is amazing to me how much stuff there is on Ebay when local dealers are having a hard time getting something to sell. The little people like me are buying and hanging on. As far as online dealers are concerned, they usually require a larger purchase than one is willing to make and delivery can be a problem (my last such purchase took10 weeks to come).

I have been buying mexican 2 and 2 1/2 peso pieces containing about .05 and .06 oz bullion value. They are easy to get, recognizable, and also represent a smaller value that a 1 oz coin.

pwoody

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A. M.
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Re: Paying Down Debt vs. Buying Gold

Gold is fine and good...

But you can't eat it. Pwoody touched on my main reason for not investing in Gold...

In a collapse, Gold will not be immediately valuable as a medium of exchange.
Even once things have stabilized, it's value will preclude it as a "conventional" source of money, unless it's significantly devalued. If and when it IS devalued, you're smarter to get it then through barter after the fact. Silver may be a smarter investment.

If the Economy of the US goes, it's likely the rest of the world will follow; Tantamount to the fall of Rome. My advice is keep paying down your debt, and invest your money into:

1. Skills. Non-perishable. Can't be stolen.
2. Tools to facilitate the skills.
3. Staple foods to see you through, and ultimate;
4. Land... last I heard, they weren't making any more of it.

Good luck to you, and Cheers!

Aaron

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propamanda
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Re: Paying Down Debt vs. Buying Gold

Jesse -

Your question is in no way
silly.  First, congrats on paying off so much credit card debt.  I
think that's the best possible thing you can do for yourself
financially. 

I am in a similar
position.  I, too, am a renter.  I've really never had any
significant credit card debt, but I do have some hefty student loans that I've
been paying down pretty aggressively for the past 5 or 6
years.  Honestly, my main reason for doing so is that I just
want the debt out of my life - I don't like owing money and I certainly
don't like paying interest on it.  I've grappled with the same question
- Is it time for me to start investing in gold, or am I already doing the
right thing?  I think that the answer to
this question depends largely on your individual circumstances.

(Let me preface this by
saying that I am not a financial advisor 
- just a person in a very similar situation who has put a lot of thought
into this)

From what you indicated,
last year you could afford to pour $8500 into paying off your debt.  If you can afford to make the same kind of
contribution this year, it seems like it shouldn’t take you very long to polish
off the remaining $3500.  I say go for
it – get that credit card debt out of your life.  The real question you’re facing is what to do with the rest of
your disposable income after your credit cards are completely paid.  Do you throw it at your student loans with
the same enthusiasm, or do you make minimum payments on student loans and start
putting your excess money into gold?

Well, the problem with gold
is that it’s a long-term investment and it’s not really immediately liquid
(meaning that you will usually have to convert it back into cash by selling it
in order to use it).

One major question that
hasn’t been brought up is how much you should have in savings.  You say that you really have no savings to
speak of, so I assume that you don’t keep any emergency money on hand or in a
bank account.  Yes, cash is vulnerable to
inflation, but in a time of real crisis, cash is the most accessible and most
liquid asset you could have.  I live in
New York City and was here throughout the September 11th crisis and
also the blackout of 2003.  One lesson I
learned is that if society really does experience a panic or interruption of
any sort (i.e. – a bank failure), nothing is more valuable in the short term
than cash on hand.  There is a good
chance that credit cards and money transfers won’t work, and any money tied up
in non-liquid assets will be unavailable for a few days.  Also, I think most economic advisors
recommend having about 3 to 5 months salary in the bank in case you are laid
off from your job or experience some personal crisis.  It sounds like a lot of money, but think of it this way – you can
defer your student loan payments if you really need to, but you can’t defer
your rent or food bill.  It’s kind of
like a little bit of your own homegrown unemployment / emergency insurance.

If you were to put this
money into gold and forego having cash savings at all, you would be tying up
your money in a long term investment that you couldn’t easily access, or you
could even lose money if you had to sell it too soon.  I like to keep a little emergency cash on hand, and keep a few
months salary in a high-interest savings account.  I’ve considered converting some of this money into gold, but I
really don’t feel that I have enough in the bank to justify pulling it out and
using it to invest in something that I may have to hold onto for 10 years to
get it to really pay off.  I think that
gold is an excellent way to STORE wealth, but maybe not invest it.  For example, if I had children, buying gold
bars that I could someday hand down to them would be a great way to store my
wealth and prevent inflation from eating up their inheritance.  If you think you may need to access that
money in the near future, however, gold could be a mistake.

Whatever you decide to do, it’s your decision.  I think you’re taking a huge step just by
asking yourself these kinds of questions and re-evaluating your financial
life.  I’ve been going through the same
kind of debate with myself.  The
decision I’ve made is to split my disposable income so that 70% goes to paying
off debt and the other 30% goes to my high interest bank account.  When I feel like I’ve acquired enough
savings, I’ll wait until gold prices are looking desirable and re-consider if
maybe I can part with a few thousand dollars for an indefinite amount of time
while it is tied up in gold.

Anyway, best of luck.

 Amanda

Jesse's picture
Jesse
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Re: Paying Down Debt vs. Buying Gold

Thank you to everyone who has responded so far - you've all given very thoughtful, helpful responses.  It's interesting to see the variety of responses, and how it looks like it really just comes down to whatever is right for each person given his/her own situation and temperament.

I still have a few months before the credit card debt is gone, so my plan is to continue hammering at the debt and use that time to evaluate my next steps and develop some barter-able skills.  In the meantime, I'll be glued to these boards... Thanks again everyone!

RSLCOUNSEL's picture
RSLCOUNSEL
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Re: Paying Down Debt vs. Buying Gold

So here is what I am thinking based on my current situation.  First of all, the only debt I have is my mortgage and that will be paid off in 2014 so my mortgage interest US tax deduction is getting less and less every year.  The value of the home exceeds the outstanding mortgage balance several times since the house is in a good neighborhood and was built in the 1980's.  I want to make some improvements in the home and refinance rates are looking very good.

I am thinking of refinancing using a 10year fixed rate mortgage, taking equity out to fix up the place, increasing my mortgage interest tax deduction, the new rates are such that even with a new mortgage and increasing the principle my monthly payment will be very manageable, and then paying the bank back in the future with near worthless dollars.

Does anyone see any problems with this thought?  Or should I just hunker down and run my mortgage to its conclusion?

 

 

joe jackson's picture
joe jackson
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Re: Paying Down Debt vs. Buying Gold

Jesse,  I think we are all trying to wrap our minds around this.  Let me congratulate you on paying down credit card debt.  Paying off debt is always the right thing to do.  However at this time I would not get in the greatest rush to pay off the school loans.  After all, what are they going to do, come reposes the knowledge out of your brain?  I would say that the point at which you shift your focus toward saving would be sooner than later.  I  like the idea of owning some gold.  Just how much?  I am asking the same question of the wisest men I know right now. Take your time.  Remember that "Haste makes Waste". Take it from someone who knows. I sense from your writing that if you could go into this SHTF thing debt free, then you will be resourcful enough to make your way through it regardless of how much money you have in the bank.  Just remember, all that is needed is a little food and a warm place to sleep at night.  There is always the future in which to rebuild.  Faith, hope and love is all you need.  The bible says that the greatest of these is love.  However my personal favorite is faith.  So keep the faith. Good luck and God bless.

Joe

Woodman's picture
Woodman
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Re: Paying Down Debt vs. Buying Gold

rscounsel, see my notes on mortgages in this thread.

 http://www.peakprosperity.com/forum/what-should-i-do-about-mortgages/8580

 

1440 minutes's picture
1440 minutes
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Re: Paying Down Debt vs. Buying Gold

Woodman,

Do you have to be a paid member to see those notes on what to do about mortgages? When I click on your link, I receive a message that I am not allowed to see that page.

apismellifera's picture
apismellifera
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Re: Paying Down Debt vs. Buying Gold
RSLCOUNSEL wrote:

I am thinking of refinancing using a 10year fixed rate mortgage, taking equity out to fix up the place, increasing my mortgage interest tax deduction, the new rates are such that even with a new mortgage and increasing the principle my monthly payment will be very manageable, and then paying the bank back in the future with near worthless dollars.

Does anyone see any problems with this thought?  Or should I just hunker down and run my mortgage to its conclusion?

 

First of all, congratulations on being so close to paid off. If it were me, I would pay off the debt and be free of the uncertainty of a new mortgage.  While it's very likely that long-term, inflation will result from the Fed's money-printing, it's still very unclear what things will look like in the short- to medium-term.  We're now watching ugly persistent deflation in home prices concurrent with simultaneous inflation in food and energy. 

I remember taking out a low-interest car loan a few years ago because I was sure  I could make more intereste  in the bank with the money I'd saved.  And then I watched rates nose-dive a couple of months later.  My point is that nobody has a crystal ball as to exactly how TS will HTF.   To me there seems to be little downside to owning your house free and clear.  Taking out a ten-year mortgage, though, might  cause all sorts of complications, depending on what things look like in five or ten years.  Could you lose your job?  Might you need to sell for some reason? Could  savings/stocks/gold/Land in Florida that you're counting on also plunge in value? I think all of these might  happen.

My own belief is that these are times to simplify one's finances, just in case. A new mortgage doesn't seem to do that.  Good luck!

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