Completely depends on what type of loans you have and what the agreements are. I can't imagine any consumer credit having prepayment penalties...unless it's some type of loan shark deal. Same thing for auto loans. Mortgages are the only loans I know of that might typically have a prepayment penalty.
Or were you talking about the consolidation loan itself? I don't think those will typically have a prepay penalty either......I'd be leery of one that did.
Well, I read and re-read the fine print and didn't see anything. Of course, I will have RM95's Girl look over it. Here's a second question. As of now, I should be completely out of debt a year from now. However, if I consolidate my debts, then it'll be three years, however, I could put close to $1,000 extra a month into savings if I did it. What would you do?
Invest your money at the highest rate possible. If you can get a 10% return in your investment account and you only pay a 5% interest rate on your debt, then invest it. I would suspect the situation is reversed, however. Take this example: I pay a 6% interest rate on my car loan. I earn a 9% after tax dividend yield on a stock that I own. It is better for me to leave the loan outstanding than to pay it off because I have a 3% arbitrage working.
OK, it's a 7.9% loan. So, you're recommending me doing the consolidation? Thanks for the info. You only want to extend the loan to 3 years if you can get more than 7.9% return in whereever you put your money. If you're putting it into a savings account (2% or so, at best), you're better off paying off the loan now. The total amount of money you'll end up with at the end of the 3 years would be higher.
What else could I put the money in that might yield higher results? IRA, mutual funds? I'm obviously very ignorant about stuff like this.
There are other considerations besides the investment rates. What does your credit look like, do you plan on applying for a loan in the near future, how comfortable are you with debt, how stable is your job, etc, that must be factored into the equation. However, there are a ton of stocks out there that may have a total return (dividend yield + capital gain) in excess of 7.9% on an after-tax basis. Some of them may include: PVR, FGP, SGU, APU, NRP
What else could I put the money in that might yield higher results? IRA, mutual funds? I'm obviously very ignorant about stuff like this. There are a variety of options - but in general, the higher the potential return, the higher the risk (if this weren't the case, the return would be lower and someone else would take the profits). Savings accounts the "no-risk" strategy with the low-end interest rates of 2%. Stocks are the high-risk strategy with potential for above 10% returns -- but also potential for -50% returns. It's just like blackjack. We can talk about options tomorrow if you want. Mutual funds would probably be the way to go for you, I would think.
However, there are a ton of stocks out there that may have a total return (dividend yield + capital gain) in excess of 7.9% on an after-tax basis. Some of them may include: PVR, FGP, SGU, APU, NRP T_J, aren't you a believer in efficient markets?
True, but the stocks I listed all have dividend yields in the 8-10% range and a tiered share class structure. An individual investor would be put in the "common class" of shares, thereby having seniority in dividend payouts over the "subordinated class". Default risk on the dividends are *highly* unlikely. I have assumed essentially a 0% capital gain in my statement -- which is conservative. These stocks are all essentially pass-throughs of natural resource income, which receives preferential tax treatment. If the Bush plan is formalized, the dividends will not be taxed at all. That's huge since right now a C-Corp's dividends are taxed at your personal income tax rate which can go as high as 38%.
Yeah, that's what some of RM95's Girl's investment banker friends said too, but they don't know my specific situation.
RM95-- I must tell you that T_J's advice in this thread is solid. The guy knows his stuff. Regarding your "specific situation," I suggest you talk it over with friends you are comfortable confiding in. They may be able to help you analyze any rational fears you may have. Assuming a stable source of income, etc...I agree with T_J with the caveat that I am not famil.iar with the specific stocks he has referenced.
Yep...just as I guessed...RM95's income is not stable. It is subject to change. I guess that means he's getting a raise.
