After my meeting with my account I was informally told that I would be receiving a tax return that while smaller than in years past it was still a few thousand dollars. When I told The Wife about the money, and that it was solely going to be used to pay down debt I could see the disappointment in her face. For the past few years I have carried consumer debt at zero percent, and while I would put a few hundred towards it a month I had more going towards my family’s investments. So whenever tax returns or bonuses came through most of it either went towards debt (or again into one of our investment accounts). When I asked why she was disappointed, she explained that she would feel better if we just eradicated our debt so that future lump sums can be used differently. It didn’t take much convincing because I already started feeling that way independent of her statement.
Investing Versus Paying down Debt
As with everything with life there is a trade-off occurring. In order to facilitate this plan I need to sell a good chunk of my dividend portfolio, as such I will be realizing capital gains (and much fewer losses). I will also cease the compounding that was already occurring on 10+ holdings. I am well aware that this is probably a bad choice mathematically as my investments were growing while the debt was not (unless the market crashes anytime soon and I just happen to luckily sell a good amount of investments at the right time).
There are three main positives associated with paying off my debt:
- I clear up a chunk of money that was being used to service the debt. I now get to apply that money to a few different goals The Wife and I had (while using at least half to invest back into building up the portfolio).
- I make my life a bit easier – this means I can basically delete the line item from my net worth. I don’t have to feel annoyed that I have the debt on the books. Yes, it is easy to justify the leverage, especially to myself – but, as I stated above, it was starting to lose its appeal.
- Next chunk of money that comes through can be used to make others in my family happy besides myself since I was the only one that checked our net worth and thus the only one who felt the movement of the debt needle down or investment needle up.
It has been a few years since I proclaimed that I was consumer debt free, but by the end of the month I’ll be able to say that again!