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Debt Repayment Strategy

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  • Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 407
    Joined: 06/10/2019
    So, with future cash flow unknown, I took on some extra debt as an insurance policy, and that’s the only reason I took out the car loans about 3 years ago. 

    Click to expand…

    So your expenses are too high so you took on a lot of debt and because of that debt you took on extra debt as an insurance policy, hmm makes perfect sense.

    Click to expand…

    Thanks. Actually my expenses were not too high before building, I was actually accumulating too much cash and looking for an investment (I put down a $1.5M down payment). I was moving from the old office to the new one, so I was told by the lenders there is some uncertainty regarding cash flow from the disruption of moving the business. Fortunately patients were very loyal and the new location is directly on a high profile road providing a growth engine.

    Remember, the extra debt was at a lower interest rate than my savings and CD returns on that insurance policy.

    Hope that clarifies.

    #237646 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 407
    Joined: 06/10/2019

    I don’t get your question. You say you’re on track to pay off all these somewhat large loans ahead of schedule IIRC, obviously making a ton.

    I think it’s clear you know what you’re doing

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    Trying to figure out which strategy will have me ahead the most after all debts are paid.

    At least one financial person here doesn’t agree with taking out multiple loans for one project due to attached assets, even at lower interest rates so my guess is he’d prefer I pay the non-commercial debt first.

    One of the most pressing decisions for me is the resetting rate loans. I’ll have to decide on refinancing them as early as 2 months from now, unless I go ahead and decide to pay them off first.

    #237656 Reply
    xraygoggles xraygoggles 
    Participant
    Status: Physician
    Posts: 113
    Joined: 10/26/2018

    I personally wouldn’t want to pay down the commercial or mortgage loan. Unless you’re worried about cash flow.

    All the others I would focus on highest rate first.

    #237698 Reply
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2608
    Joined: 05/01/2017

    Is there a general rule regarding debt repayment, or is it specific to one’s own circumstances (income, NW, tax benefits of debt, etc.)?

    Commercial loan $1.4M 10 year (no balloon) 3.5% fixed, 8 years left, payment is $17K/month

    Home loan $350K 5 year arm 2.75%, resetting 11/1/2019, payment is currently $1700/month

    Car loan $65K 6 year loan 1.75%, 3 years left, payment is $1700/month

    Credit card debt $45K 0% intro term, resetting 1/2020, 4/2020 split about 50/50 on two cards, minimum payment is currently $470/month.

    CD interest income 2.65%-3% 12-18 month CD terms, savings interest 1.5%-2.3% with combined interest income about $50K/year on $2.1M cash flow reserves for annual expenditures (not expenses) about $1.9M.

    Pay off highest interest rate debts off first? Pay off smallest loans first to decrease monthly payments/improve cash flow? Pay off non tax-advantaged auto loans first? Pay off by riskiest attached asset? Pay off everything and wipe out reserves? Pay off debts as they reset from low to high interest rate (5 year ARM, credit cards) or refinance them to pay off highest debt rates first.

    Do not recommend I invest it in these markets instead, you all know how I feel about the current markets, it’s not 2009. I’m more interested in debt repayment strategies. However I proceed, I wanted all debts paid off in next 2-3 years.

    How would you tackle? Thanks in advance.

    Click to expand…

    I would strongly recommend that you take part of your $13M net worth, maybe either your $2M emergency fund or a fraction the $10M you have currently invested and pay off all of this debt tomorrow.

    I can link to the posts if anyone else can’t find them.

    #237757 Reply
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1313
    Joined: 01/26/2017

    Is there a general rule regarding debt repayment, or is it specific to one’s own circumstances (income, NW, tax benefits of debt, etc.)?

    Commercial loan $1.4M 10 year (no balloon) 3.5% fixed, 8 years left, payment is $17K/month

    Home loan $350K 5 year arm 2.75%, resetting 11/1/2019, payment is currently $1700/month

    Car loan $65K 6 year loan 1.75%, 3 years left, payment is $1700/month

    Credit card debt $45K 0% intro term, resetting 1/2020, 4/2020 split about 50/50 on two cards, minimum payment is currently $470/month.

    CD interest income 2.65%-3% 12-18 month CD terms, savings interest 1.5%-2.3% with combined interest income about $50K/year on $2.1M cash flow reserves for annual expenditures (not expenses) about $1.9M.

    Pay off highest interest rate debts off first? Pay off smallest loans first to decrease monthly payments/improve cash flow? Pay off non tax-advantaged auto loans first? Pay off by riskiest attached asset? Pay off everything and wipe out reserves? Pay off debts as they reset from low to high interest rate (5 year ARM, credit cards) or refinance them to pay off highest debt rates first.

    Do not recommend I invest it in these markets instead, you all know how I feel about the current markets, it’s not 2009. I’m more interested in debt repayment strategies. However I proceed, I wanted all debts paid off in next 2-3 years.

    How would you tackle? Thanks in advance.

    Click to expand…

    I would strongly recommend that you take part of your $13M net worth, maybe either your $2M emergency fund or a fraction the $10M you have currently invested and pay off all of this debt tomorrow.

    I can link to the posts if anyone else can’t find them.

    Click to expand…

    No that makes no sense (that might make sense for level 1 index fund peons but to be a true wealthy entrepreneur, I would buy another supercar then take out a loan on the car and reinvest it into the business. Makes much more sense. You got to think outside the box as an entrepreneur)

    #237759 Reply
    Liked by wonka31, Lordosis, MPMD
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 407
    Joined: 06/10/2019

    Is there a general rule regarding debt repayment, or is it specific to one’s own circumstances (income, NW, tax benefits of debt, etc.)?

    Commercial loan $1.4M 10 year (no balloon) 3.5% fixed, 8 years left, payment is $17K/month

    Home loan $350K 5 year arm 2.75%, resetting 11/1/2019, payment is currently $1700/month

    Car loan $65K 6 year loan 1.75%, 3 years left, payment is $1700/month

    Credit card debt $45K 0% intro term, resetting 1/2020, 4/2020 split about 50/50 on two cards, minimum payment is currently $470/month.

    CD interest income 2.65%-3% 12-18 month CD terms, savings interest 1.5%-2.3% with combined interest income about $50K/year on $2.1M cash flow reserves for annual expenditures (not expenses) about $1.9M.

    Pay off highest interest rate debts off first? Pay off smallest loans first to decrease monthly payments/improve cash flow? Pay off non tax-advantaged auto loans first? Pay off by riskiest attached asset? Pay off everything and wipe out reserves? Pay off debts as they reset from low to high interest rate (5 year ARM, credit cards) or refinance them to pay off highest debt rates first.

    Do not recommend I invest it in these markets instead, you all know how I feel about the current markets, it’s not 2009. I’m more interested in debt repayment strategies. However I proceed, I wanted all debts paid off in next 2-3 years.

    How would you tackle? Thanks in advance.

    Click to expand…

    I would strongly recommend that you take part of your $13M net worth, maybe either your $2M emergency fund or a fraction the $10M you have currently invested and pay off all of this debt tomorrow.

    I can link to the posts if anyone else can’t find them.

    Click to expand…

    Okay, a bold vote to use all cash reserve to pay all existing debt. I have thought about it for sure, but always back off remembering there is the occasional month my expenses shoots beyond $250K, usually when quarterly taxes are due in conjunction with an unusually expensive month at the office.

    This gets to how much reserve am I comfortable with once these recurring debts are all paid off. I’m thinking about $500K but open to recommendations. That amount could be accumulated over the course of a year, given my savings rate. Maybe one option is to incrementally pay it all down over the next 12 months as this reserve replaces. That would certainly accelerate financial freedom!

    Food for thought. Thanks!

    #237760 Reply
    Liked by adventure
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 407
    Joined: 06/10/2019
    Click to expand…

    No that makes no sense (that might make sense for level 1 index fund peons but to be a true wealthy entrepreneur, I would buy another supercar then take out a loan on the car and reinvest it into the business. Makes much more sense. You got to think outside the box as an entrepreneur)

    Click to expand…

    “Why someone in your situation laden with this complex debt situation would even think about buying “supercars” and all of the other crap I have no idea. Fatlittlepig’s balance sheet is very simple no debt, no mortgage, large nest egg.”

     

    -FLP, there’s one too many pills in your Seroquel bottle.

    …and…and…your really a human being.

    #237761 Reply
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2608
    Joined: 05/01/2017

    Is there a general rule regarding debt repayment, or is it specific to one’s own circumstances (income, NW, tax benefits of debt, etc.)?

    Commercial loan $1.4M 10 year (no balloon) 3.5% fixed, 8 years left, payment is $17K/month

    Home loan $350K 5 year arm 2.75%, resetting 11/1/2019, payment is currently $1700/month

    Car loan $65K 6 year loan 1.75%, 3 years left, payment is $1700/month

    Credit card debt $45K 0% intro term, resetting 1/2020, 4/2020 split about 50/50 on two cards, minimum payment is currently $470/month.

    CD interest income 2.65%-3% 12-18 month CD terms, savings interest 1.5%-2.3% with combined interest income about $50K/year on $2.1M cash flow reserves for annual expenditures (not expenses) about $1.9M.

    Pay off highest interest rate debts off first? Pay off smallest loans first to decrease monthly payments/improve cash flow? Pay off non tax-advantaged auto loans first? Pay off by riskiest attached asset? Pay off everything and wipe out reserves? Pay off debts as they reset from low to high interest rate (5 year ARM, credit cards) or refinance them to pay off highest debt rates first.

    Do not recommend I invest it in these markets instead, you all know how I feel about the current markets, it’s not 2009. I’m more interested in debt repayment strategies. However I proceed, I wanted all debts paid off in next 2-3 years.

    How would you tackle? Thanks in advance.

    Click to expand…

    I would strongly recommend that you take part of your $13M net worth, maybe either your $2M emergency fund or a fraction the $10M you have currently invested and pay off all of this debt tomorrow.

    I can link to the posts if anyone else can’t find them.

    Click to expand…

    Okay, a bold vote to use all cash reserve to pay all existing debt. I have thought about it for sure, but always back off remembering there is the occasional month my expenses shoots beyond $250K, usually when quarterly taxes are due in conjunction with an unusually expensive month at the office.

    This gets to how much reserve am I comfortable with once these recurring debts are all paid off. I’m thinking about $500K but open to recommendations. That amount could be accumulated over the course of a year, given my savings rate. Maybe one option is to incrementally pay it all down over the next 12 months as this reserve replaces. That would certainly accelerate financial freedom!

    Food for thought. Thanks!

    Click to expand…

    Yes, a bold and unconventional strategy not to have credit card debt and a car note with $2M in ready cash.

    #237763 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 407
    Joined: 06/10/2019

    Okay, so it looks like your vote is also to pay off the smallest debt first. Thanks.

    #237764 Reply
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 229
    Joined: 12/28/2016

    If cashflow is not a problem then start paying off with the highest after tax loan.

    #237768 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 104
    Joined: 05/25/2019

    I would focus on taxes and liabilities.

    I would pay off home mortgage first.

    Primary home is one of the best asset protection in FL, that is where you should shield your assets, not in real estate properties.

    I would get rid of car loan and credit card loan which are less than $100K.

    It is just waste of the time trying to keep track of these loans.  How much money can be made out of 100K?

     

    Commercial loan 1.4M 10 year is great!

    I wish I can have two of this loan.  I would not pay off this loan before it terms, instead I would try to get more.

    Why do you keep so much equity in the building (high liability) and generates $350K incomes, and pay 40% taxes?

    If your goal is to double your net worth every 7-10 years, keeping equity in buildings, saving, or CD will not get you there.

    Taking 3-5M loan and invest that money in assets that can generate 7-10% return, you will have 30M NW in 10 years.

     

     

     

     

    #237776 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 407
    Joined: 06/10/2019

    Thanks Infinity! Very thoughtful.

    My ARM against the house resets Nov. 1, 2019 so there is a high likelihood this is the first debt I will pay off (by then).

    Looks like you feel car/credit cards should go next. Credit cards have to be paid off early 2020 anyway before 0% resets.

    I’ll reconsider my plans to pay off the office building early if I find stock market opportunity I’m comfortable with. Right now I’m not really there. Hate to dump in a few million and wind up -50%, but working on this aversion. If it doesn’t correct and pushes on, my current holding are aggressively invested. If the sideways market continues for some times, it won’t give us much direction until there is a break out one way or another.

    I agree with $30M estimate in 10 years, but I think there are a few paths. Hoping the market cycle corrects sooner rather than later, I’d infuse another $1.5M plus the extra $500K in reserves accumulated annually.

    With the building tax depreciation, loan interest and property taxes, the building has helped get my effective tax rate closer to 30%. Keep in mind that in addition to providing $360K/year in today’s dollars over the decades, the commercial real estate also appreciates over the decades whatever that rate of return winds up being. But you are correct, my effective tax rate is still higher than if a larger share of income was generated by long term capital gains. So in due time, I will shift back resources to more passive to market investments. It’s essentially juggling asset class allocation to a comfortable level of risk in any one class.

    #237791 Reply
    Avatar EndoRobert 
    Participant
    Posts: 71
    Joined: 01/12/2019
    Earnest refinancing bonus

    Is there a general rule regarding debt repayment, or is it specific to one’s own circumstances (income, NW, tax benefits of debt, etc.)?

    Commercial loan $1.4M 10 year (no balloon) 3.5% fixed, 8 years left, payment is $17K/month

    Home loan $350K 5 year arm 2.75%, resetting 11/1/2019, payment is currently $1700/month

    Car loan $65K 6 year loan 1.75%, 3 years left, payment is $1700/month

    Credit card debt $45K 0% intro term, resetting 1/2020, 4/2020 split about 50/50 on two cards, minimum payment is currently $470/month.

    CD interest income 2.65%-3% 12-18 month CD terms, savings interest 1.5%-2.3% with combined interest income about $50K/year on $2.1M cash flow reserves for annual expenditures (not expenses) about $1.9M.

    Pay off highest interest rate debts off first? Pay off smallest loans first to decrease monthly payments/improve cash flow? Pay off non tax-advantaged auto loans first? Pay off by riskiest attached asset? Pay off everything and wipe out reserves? Pay off debts as they reset from low to high interest rate (5 year ARM, credit cards) or refinance them to pay off highest debt rates first.

    Do not recommend I invest it in these markets instead, you all know how I feel about the current markets, it’s not 2009. I’m more interested in debt repayment strategies. However I proceed, I wanted all debts paid off in next 2-3 years.

    How would you tackle? Thanks in advance.

    Click to expand…

    I would strongly recommend that you take part of your $13M net worth, maybe either your $2M emergency fund or a fraction the $10M you have currently invested and pay off all of this debt tomorrow.

    I can link to the posts if anyone else can’t find them.

    Click to expand…

    No that makes no sense (that might make sense for level 1 index fund peons but to be a true wealthy entrepreneur, I would buy another supercar then take out a loan on the car and reinvest it into the business. Makes much more sense. You got to think outside the box as an entrepreneur)

    Click to expand…

    Earlier in thread, FLP- I’m not trolling.

    Maybe its time time for another self-imposed forum break FLP.

    #237824 Reply
    Avatar Panscan 
    Participant
    Status: Resident
    Posts: 1152
    Joined: 03/18/2017

    What is the point in messing with credit cards at your level? It’s just an unnecessary hassle. I mean sure 0% is nice but is it really worth the hassle/ potential for error?

    #237831 Reply
    Liked by adventure, childay
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1313
    Joined: 01/26/2017

    What is the point in messing with credit cards at your level? It’s just an unnecessary hassle. I mean sure 0% is nice but is it really worth the hassle/ potential for error?

    Click to expand…

    Very little (or none) of it makes any sense..

    #237832 Reply

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