So the one question I had recently concerned paying off debt with a mutual fund. Should this couple take their underperforming mutual fund and pay off a car payment and some credit card debt. This would free up between $400-$500 per month. I had to think about this for a bit. I am not Suze Orman, afterall. I asked some more questions...how long on the car payment? What are the plans for the "freed" up dollars.
Here was my response: Sorry it has taken me so long to get back to you. I think I would keep the mutual fund. If you need the extra cash then stop funding it and take the extra $100 and put it to the CC debt.
Here's why: The mutual fund was bought by with dollar cost averaging...you bought high and low. I wouldn't want you to "lose" money by selling when it is low.
The other reason is that the truck payment is already budgeted in. Yeah, I know things are tight with the credit card payment, but this is temporary. If you sell the mutual fund then you don't have that money for a true emergency. This period of time is uncomfortable, not an emergency. Plus, I am unclear as to what you would do with all the "extra" monthly cash.
A couple of things I want to point out...first, this is just MY opinion, second, someone else may have a totally different opinion and that is okay.
I think the thing I got from this question was how uncomfortable this girlfriend was with her debt level. I can appreciate that. If this was a true emergency, medical bills, no job, heading to bankruptcy, etc. I might have answered differently. Instead this was just about a "comfort" level and emotions can be managed.
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I have a Lenten challenge update....it is going great!! Seriously. I am so happy that I will not have to "borrow" money from our savings to pay the credit card bill. Paying the credit card bill off every month is non-negotiable for us. We implemented that rule years ago and no matter how painful it is we accomplish it. And yes, we use a credit card. Our credit card gives us points. We can either "buy" things with our rewards or we can have Bank of America cut us a check when we earn a certain number of points. We like getting the cash.
Which leads me to interest rates on credit cards...do you know what yours is/are? And if you pay off your credit card every month, does it matter? I think our BoA credit card is 9.99%, but I don't know. It doesn't matter to me since I don't pay interest. We received something from Lowe's the other day regarding policy changes and I was floored to see the interest rate over 24%. Holy Hannah!! I can't remember the last time we used that card. If we ever use it in the future it will be for a 0% deal. We only do that if we know we can pay it off when the date arrives. That is another non-negotiable.
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Now I must tell you, I do NOT sit in judgement of my girlfriends when they spend money. Truly. It is your money. Please do not be uncomfortable around me and money. I am hardly perfect. I love to peruse the $1 bin at Target as much as the next girl...just not this Lenten season LOL. I am happy though that this blog has gotten so many of you more in tune to your finances. I love the conversation. I could talk money and finances all day, but that would bore you all so this is a perfect venue.
I do have a favor though...I need comments on here. Someday I would like to make money off this (of course....duh!). Not from you all, per se, but from putting ads on here. I am not there yet, but having "comment" traffic would help so "comment" away! Thanks!
7 comments:
I'm testing to see if my comment will show up this time.
But, I also wanted to add that I really see the sense of what you said about keeping the mutual fund and just stop funding it for now. There is a difference between things being tight and an actual emergency but sometimes we need the reminder- and you just reminded me!
An alternative answer to your girlfriends question could be this...
Go ahead and sell that under performing mutual fund to pay off your car, but since your car payment is already part of your budget use those payments to pay yourself!
Invest those monthly payments in another mutual fund (or other investment vehicle that you like). This will effectively mean that you are dropping a weak investment and using the resulting funds to pay yourself... you'll also be paying yourself the interest that you were previously giving to the bank!
Cheers,
The Andy
I smiling at you "borrow from Savings to pay the credit card". My family and many others I know do that exact same thing!! :)
MS
MS, the "borrowing" from savings is a reminder that I spent too much on "stuff" that I probably didn't need. That is why this Lenten challenge has been so helpful. I prefer to see the money I put in that savings account to stay there :)
Jennifer
Katburd,
Yes, your comment "appeared" this time. I am glad this was a reminder. Hopefully, a gentle one. As I told my friend, sometimes it is hard "to see the forest for the trees."
Jennifer :)
The Andy,
I do appreciate what you are saying and I agree, but I don't think most people spend the amount of time you and I do contemplating their investments. I think the vast majority of people feel overwhelmed by the choices and options and choose not to do anything. Or worse, they will take the money out of an investment and not reinvest in themselves.
Thanks for commenting...keep them coming!
Jennifer :)
I think the key point that hit me is that what is in place is already budgeted and what would happen with the money if the mutual fund was closed/car payment obsolete is unknown.
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