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Should I Be Debt Free? – Robert

I’m 50 years old, self-employed, with a total net worth of about 1.2 million. Our combined income varies from $80,000 to $150,000 a year, although in recent years business has been bad, and in my industry, people are being laid off and prices are stagnating.

My Father was laid off at age 55. My brother just lost his government job (an neat trick) at age 53. I worry that while I am making good money now, our debt servicing requires a fairly large cash-flow and if it is interrupted, well, all heck will break loose.

I am selling my vacation home (yea, poor me) because the overhead and amount of work is just too much. We have a $340,000 mortgage on our primary residence and a $30,000 balance on credit cards, mostly because I had to pay a capital gains bill on another property a year ago (my accountant had brain cancer, it’s a long tragic story) and I put it on a credit card. The rest of our savings is tied up in SEP, 401(k), IRA and life insurance investments.

By selling the vacation home, we can pay off all our debts and be debt-free. This means if my income drops (as it did this year) I don’t have to worry about making mortgage payments. It also means I can fully fund my SEP and IRA plans, etc. each year from here to retirement.

Should I pay off all my debts and be debt free? Some of these self-styled economic “gurus” say I should keep the debt and “invest” the $400,000 in stocks so I can make more money and take tax deductions.

My gut reaction is that the tax code is a lousy investment guide, and you can’t deduct your way to wealth.

Also, when I crank the numbers, the difference between investing the money (and making mortgage payments and paying interest for another 10 years) and paying off the mortgage and then investing the freed-up payment money is about a wash at my age. I have maybe 10 years more before I retire.

And if the stocks tank, well, there was my one shot at being debt-free, and now I’m broke and have this huge mortgage to pay off. And if I lose my job, wow, I’d have to tap into my 401(k) to live. Ouch.

Are the “Gurus” right and I am missing something? Or should I go for the brass ring and be debt-free at age 50? I guess you can see which way I am leaning. But this is the biggest decision of my life and I want to make sure I do this right. I don’t get a “do over” on this one.

Thanks.

Robert

It’s time to put debt behind you and start dreaming about your life after debt. – Click to Tweet

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • cherscrafty

    I agree with the other comments and think you made the right choice to sell your vacation home.  While I’m sure it’s hard to see it go, I think the relief you will feel for doing so, will be worth it. Good luck to you.  I hope you are able to avoid the health issues you are worried about.

  • Steve Rhode

    If you click on the link right below the ads it will take you to the site terms which explains why the ads are there and everything you want to know about ads.

  • Robertplattbell

    I like your site and you provide some good advice. One thing that is troubling, is that many of the Google advertisements on your site appear to be for some of the very same “debt relief” and “credit repair” companies that your postings are warning against……

    I hope your readers don’t think you are endorsing those companies whose ads appear at the top of your pages….

  • Robertplattbell

    First of all, after reading some of the stories here, I realize how blessed I am. I have always been good about saving money, although I wish I had saved more over the years and spent a lot less!

    And but for a lot of good luck (the will of God?) I could have been one of those people who was caught owning a lot of overpriced Real Estate when it all went horribly bad a few years back. I got out in time.

    We close on the house next week. When that check comes, I will be making a payment to the mortgage company and going debt-free.

    The thing that worries me, is potential health problems as I get older. Supposedly more than half of all bankruptcies are related to medical bills (a common thread I hear on your site from viewer questions). Being in debt and “leveraged” is a bad place to be if you have an illness or accident and can’t work or have large debts.

    And a lot of these “financial gurus” it seems have some really bad advice. The mythical “opportunity cost” of paying off debt really makes sense only to corporations and businesses that are using capital to invest in their businesses. For consumers, the “opportunity cost” is a lot less.

    So, debt-free for me. And I’m lucky to be that way. Now the trick is to STAY that way!

  • Steve Rhode

    The biggest benefit about being debt free isn’t in the numbers, it’s in your life. Even without the financial obligations you’ll never be totally debt free, you’ll owe taxes, utilities, etc. Just stuff you must pay.

    What being totally out of debt gives you, which is almost priceless, is peace of mind and options. Without the need to service your debt it is possible to experience less stress, more freedom, and a higher quality of life if you measure quality not by the crap you can buy.

    I recognize the argument, I’ve heard it for years, but for me, debt free is a blast.

    Please let me know what you choose to do.

  • http://GetOutOfDebt.org Steve Rhode

    The biggest benefit about being debt free isn’t in the numbers, it’s in your life. Even without the financial obligations you’ll never be totally debt free, you’ll owe taxes, utilities, etc. Just stuff you must pay.

    What being totally out of debt gives you, which is almost priceless, is peace of mind and options. Without the need to service your debt it is possible to experience less stress, more freedom, and a higher quality of life if you measure quality not by the crap you can buy.

    I recognize the argument, I’ve heard it for years, but for me, debt free is a blast.

    Please let me know what you choose to do.

    • Robertplattbell

      First of all, after reading some of the stories here, I realize how blessed I am. I have always been good about saving money, although I wish I had saved more over the years and spent a lot less!

      And but for a lot of good luck (the will of God?) I could have been one of those people who was caught owning a lot of overpriced Real Estate when it all went horribly bad a few years back. I got out in time.

      We close on the house next week. When that check comes, I will be making a payment to the mortgage company and going debt-free.

      The thing that worries me, is potential health problems as I get older. Supposedly more than half of all bankruptcies are related to medical bills (a common thread I hear on your site from viewer questions). Being in debt and “leveraged” is a bad place to be if you have an illness or accident and can’t work or have large debts.

      And a lot of these “financial gurus” it seems have some really bad advice. The mythical “opportunity cost” of paying off debt really makes sense only to corporations and businesses that are using capital to invest in their businesses. For consumers, the “opportunity cost” is a lot less.

      So, debt-free for me. And I’m lucky to be that way. Now the trick is to STAY that way!

      • Robertplattbell

        I like your site and you provide some good advice. One thing that is troubling, is that many of the Google advertisements on your site appear to be for some of the very same “debt relief” and “credit repair” companies that your postings are warning against……

        I hope your readers don’t think you are endorsing those companies whose ads appear at the top of your pages….

      • http://GetOutOfDebt.org Steve Rhode

        If you click on the link right below the ads it will take you to the site terms which explains why the ads are there and everything you want to know about ads.

  • Ashlee

    I think you should pay it off now. Better safe than sorry in these unsure economic times. Then possibly invest more down the line if and when the economy picks up.

    Good luck!

  • Ashlee

    I think you should pay it off now. Better safe than sorry in these unsure economic times. Then possibly invest more down the line if and when the economy picks up.

    Good luck!

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