If ya had the dough, would you keep the debt or pay it off?

[jcooper]

So, I've got a tm lease with about 7k left on it(approx 21 payments). I have the money to pay it off, just not sure it's the best idea.

Including the tm insurance($50/month) and tax it's just under 400/month. That's a 4k per year deduction. I mean, ya gotta have some deductions or uncle sam's going to kill ya.

However I'll save 1k just in insurance cost over the next 21 months. After the tm is paid off, we will be hopefully getting a new/newer van(gotta have deductions!).


I'm also trying next year to get a new house and the more cash the better chance we have.
Pretty sure a lease doesn't show up when they pull my credit. What's better more cash or less debt?


So, generally speaking, if you had the money would you pay it off?

 

[FB7777]

I would pay it off, especially if you are not intending on using the capital for something else.

At the very least, you could fund your SEP IRA with the money and avoid tax liability that way on business profits.

I wouldn't use the rational of " needing debt to save on taxes ". It's better to be debt free than hold debt . Interest payments are a drawn on profitability.

 

[Nate The Great]

I'm not as smart as Ken Snow (may he rest in peace) was, but he was a fan of using others peoples money. I personally hate debt and pay for things out right or I don't buy it at all. Very short sighted in business, I've been told.

 

[Desk Jockey]

I like the cash.

While it won't earn you much in a bank you are liquid and when you go for that loan it should carry more weight than a paid off cleaning unit.

I hate debt but its a way of life in this business so I adjust to it.

 

[dealtimeman]

I don't know your entire financial picture and your financial goals, buttt..

If you are financially responsible I would keep the money and the write off as it is not a great debt load both seeing as you have the cash to pay it and it is a smaller amount. Stay liquid and stash that money for the unexpected.

Again I don't have your entire financial picture to look at, consult your accountant and weigh the pros and cons and make your best informed decision for your situation.

 

[dealtimeman]

I don't know if you have other assets that you wholly own, I don't know how much savings you have, I don't know how much operating Capitol you have, I don't know if you owe on other loans or have other debts, a lot of factors to consider more than what I typed quick.

 

[Lars]

Cash is king.
Keep your write offs.

 

[Shane Deubell]

Like the cash also but i guess it depends on how much you already have in reserves.

 

[FB7777]

Like Lockhart said, without more details it's unclear what your best avenue is... All I can go by is your title

" if you had the dough would you pay it off"

As to the " write off " , if you paid it off you don't " lose " the write off, you accelerate it to this year ( assuming you make the payoff in 2014 "

The only part you would lose is the interest write off.

I don't see how people are happy with a $20,000 mortgage interest write off at the end of the year for their primary residence, so what ? You get to not pay any taxes on $20 grand that you gave a bank

Better to have no mortgage , have the $20 grand earned income and pay the taxes on it

Americans baffle me... They love to burn their hard earned money on interest payments and their only reward is a Write off

Reminds me of the Seinfeld episode when Kramer and Jerry go back and forth about write offs

 

[Chet]

For me it depends on the interest rate. Figure out how much interest you'll pay this year and then decide.

 

[Shane Deubell]

Yeah, i wouldnt keep debt or take on any just for a write off.

Do think we live very high risk lives though and need really high cash reserves.
That cash cushion is more important to me then a little bit of debt.

Details....

 

[braden]

And some equipment leases won't allow you to pay it off early if it is actually a lease. Might not apply to yours

 

[mirf]

Keep the cash. Maybe buy the house early. What would the penalty be for early pay out and what is the interest rate?

 

[jcooper]

I appreciate the thoughts/replies, fellas.


Totally agree with Fred. Less debt the better, this 7k(for the tm) is really the only debt I/the biz have. The van and everything else is owned. There is no pre payment penalty on the lease.

I need to do whatever will get me/us into the next house,two kids in the last three years! More than likely, I'm are going to do what my mortgage broker tells me to do. If cash in hand is more impressive to the bank, than zero debt(except current mortgage) than so be it... Gotta get outta this house and rent it out.

Thanks again.

 

[Becker]

How would it save you in insurance? Are you dropping insurance once paid off? Btw you are over paying at $50 per month. Grossly over paying. Paying it off or not you 1st call should be decreasing that insurance cost.


....

 

[adamh]

There is no feeling like being dept free. I only have a house payment nothing else. Pay it off. Then save like crazy for a rainy day. Many cleaners are a neck injury away from bankruptcy. Being debt free is he way to be.

 

[Chris A]

My biz became debt free in the spring when I sold my back-up van (that I still owed a little on) and bought another older CDS with the cash I pulled out. I'm telling you there is no better feeling than not making van payments every month regardless of what the tax man says at the end of the year (and I still got plenty of other payments)

 

[ronbeatty]

Pay it off, then save the payment every month. That is called " paying yourself". Just remember, bankers are just below used car salesmen and just above attorneys!!!

 

[Captain America]

My grandad ran a farm for 50 years debt free
I have followed his footsteps...I pay everything cash....0 debt for cars or house all paid.....
Just bought a 5000$ car paid it off in 4-5 weeks
Pay off the debt...you will. Sleep better
Cap

 

[handdi]

Tm insurance ?
Fire your insur agent now
Should be able to add a marine inland policy onto your gen liab policy for practically nothing.
As matter of fact your gen liab policy has a certain amount of equipment coverage anyways
Yes full coverage replacement.
I would absolutely pay the thing off and get out of that mess.

 

[rick imby]

WAIT----

There is no way from the limited information you gave that someone could give you thoughtful advice.

Do you have enough saved for your down payment so you do not have to pay MORTGAGE INSURANCE?
You need a 20% down payment to get out of the nasty nasty nasty mortgage insurance.

Mortgage insurance can take a 4% loan and turn it into 6%, 7% or more ---huge difference and you don't really get the numbers broken down for you when you are buying the house---you kinda do but they use a monthly number for your mortgage insurance so it doesn't seem so bad.

My son's house Around $300,000 it was an extra $350 a month for mortgage insurance---if he had not put down 20%.

 

[Bjorn]

there is no better feeling than waking up in the morning having no jobs on the books but everything is PAID FOR then go skiing

 

[Joe Appleby]

The question should be, how best should I spend the cash I have to grow my business.

 

[GeneMiller]

If you pay a 100 dollars in interest and are in the 30% tax bracket you will save 30 dollars but pay 70 to the bank. Reverse that you pay the tax on 100 and you pay the irs 30 dollars and keep 70. Easy decision. I'm always shocked how few people get that.

Gene

 

[PrimaDonna]

Like others said, many factors to consider.

I would make sure you have a good emergency fund built up prior to paying it off. (Enough to cover all expenses, both business and personal for 3-6 months - what if you are injured, experience a unusual slow period - we did more so than usual with the brutal winter in the NE) If you do and this is something you can pay off with extra cash above and beyond the emergency fund, have at it. It also depends on how your business is structured. There is a difference between business debt and personal debt. Are you a sole proprietor? Corporation? This type of thing can effect your decision. What is the interest rate on the loan?

I'm all about being debt free and paying cash. But if I pay everything off and have no money in the bank, something comes up and I have to then take on debt to cover it, what good is that? For instance, we have a LOC at 3.75%. I'd rather have $20,000 out on that LOC and $20,000 in the bank over paying it off and not having that line open to me anymore. If I no longer have that 3.75 rate and have to take out another loan or advance on credit card (And we know what those rates are like), because I don't have any back up, then I'll end up paying more in the long run.

The best person to answer this question is your CPA or Financial Advisor that has a comprehensive understanding of your financial matters both personally and for the business.

FYI, with kids ...when college financial aid comes up, they look at the money in the bank, not your debt. If you have $100,000 in debt and $100,000 in the bank, the money in the bank will count against you for aid. They won't look at the debt you have. But, if you use that $100,000 to pay off the $100,000 in debt, then you don't have it sitting in the bank and they won't factor it in when considering how much aid your child is eligible for. Something to consider....

 

[idreadnought]

I say pay it off no questions. If you say 50 a month for insurance 21 months is $1,050 and based off of your statement of a little under 400 then your lease payment is about $350 per month so you would save in the neighborhood of $1500 in about a year and a half. That is a chunk of money and I would hate to see it flushed down the drain to keep money on hand. The only way i would hesitate would be if you didn't have any access to emergency money. Even a credit card is access to emergency money.