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Depends on the type of debt, which is individual to the consumer. Mortgage, auto, and student loan debt compose 88% of consumer debt. [0] These types of debt t

Depends on the type of debt, which is individual to the consumer. Mortgage, auto, and student loan debt compose 88% of consumer debt. [0] These types of debt typically have low interest rates. Market returns for the past decade have exceeded the interest rates. Paying the minimums, and investing the difference? The consumer would be ahead. 12-15% YoY stock returns compound faster than 4% mortgage debt. [0]: https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/ https://www.experian.com/blogs/ask-experian/research/consume...

dharma1 6y ago
I don't think it's wise to project guaranteed 13-15% stock market returns, or suggest it's better than paying off debt. It may have been the case last few years of the cycle, but may well not be the case for the next 5 years.
maest 6y ago
You're arguing for taking out loans to invest in the stock market, which sounds irresponsible to me.
- jcranmer 6y ago
  Actually, corporations do do things like borrow to pay dividends or buy back stock... because they get to deduct debt from their taxes. Individuals can take advantage of this with mortgages: your mortgage interest is deductible. [1] Not all debt is equivalent: credit card debt and payday loans are examples of pretty punitive debt that really should be avoided. The return on investment from paying off debt is roughly equivalent from the interest on your debt; if it's lower than you can get by investing elsewhere, then it may make sense to invest elsewhere, especially when you factor in second-order effects like tax laws. [1] For the record, I think the tax-advantaged nature of debt is absolutely inane and should be removed. But that is unlikely to be politically feasible.
- JMTQp8lwXL 6y ago
  Are you saying every person who buys a home with a mortgage, while still throwing 5% of salary in their 401(k) is irresponsible? Many, many people do this.
  - VRay 6y ago
    If you think you can count on YOY 12-15% returns on the stock market, you should be buying 10% OTM LEAPs instead of shares. You'll be the world's first trillionaire in a decade or so
    - JMTQp8lwXL 6y ago
      You don't need a 12-15% stock market return for your investment returns to beat the growth of your interest debt. For most mortgages, it's a fixed rate. About 4%, some well-qualified borrowers have in low-to-mid 3%, for mortgages originated in the last 12-24 months. Long-term, will an index fund stock market investment exceed 3% returns? Historically speaking, it's a likely outcome.

dharma1 6y ago

I don't think it's wise to project guaranteed 13-15% stock market returns, or suggest it's better than paying off debt. It may have been the case last few years of the cycle, but may well not be the case for the next 5 years.

maest 6y ago

You're arguing for taking out loans to invest in the stock market, which sounds irresponsible to me.

jcranmer 6y ago
Actually, corporations do do things like borrow to pay dividends or buy back stock... because they get to deduct debt from their taxes. Individuals can take advantage of this with mortgages: your mortgage interest is deductible. [1] Not all debt is equivalent: credit card debt and payday loans are examples of pretty punitive debt that really should be avoided. The return on investment from paying off debt is roughly equivalent from the interest on your debt; if it's lower than you can get by investing elsewhere, then it may make sense to invest elsewhere, especially when you factor in second-order effects like tax laws. [1] For the record, I think the tax-advantaged nature of debt is absolutely inane and should be removed. But that is unlikely to be politically feasible.
JMTQp8lwXL 6y ago
Are you saying every person who buys a home with a mortgage, while still throwing 5% of salary in their 401(k) is irresponsible? Many, many people do this.
- VRay 6y ago
  If you think you can count on YOY 12-15% returns on the stock market, you should be buying 10% OTM LEAPs instead of shares. You'll be the world's first trillionaire in a decade or so
  - JMTQp8lwXL 6y ago
    You don't need a 12-15% stock market return for your investment returns to beat the growth of your interest debt. For most mortgages, it's a fixed rate. About 4%, some well-qualified borrowers have in low-to-mid 3%, for mortgages originated in the last 12-24 months. Long-term, will an index fund stock market investment exceed 3% returns? Historically speaking, it's a likely outcome.