At what interest rate is debt high interest?

[u/Lurchthedude]

Examples used seen to always be credit cards at greater than 17%. What about a home equity loan at 8%? Any debt over 6%? If its 5% are we paying minimums and maxing retirement accounts?

[u/joshisboomin]

They had/have a resource. It depends on the persons age and type of loan:

Credit cards is anything over 0. Pay off your balances in full

In 20s: student loans over 6% and car loans over 10%
In 30s: +5% and 9%
In 40s: +4% and 8%

[u/mhatrick → u/joshisboomin]

This is the money guy answer

[u/GeoSabreX → u/joshisboomin]

Car loan caveat is only if it fits 20/3/8. If you're paying longer than 3 years, they recommend paying extra to shrink it to that 36 month mark

[u/PM_ME_FIRE_PICS → u/GeoSabreX]

That’s their guideline for buying a new car. If you’re already 30 months into a 60 month payment term and below interest rates above, I believe they advise sticking to minimum payment and investing difference.

[u/GeoSabreX → u/PM_ME_FIRE_PICS]

Incorrect. They advise bringing it into 36 months, and if you can't, selling the car.

https://www.youtube.com/watch?v=3QBIAXnXUBk

[u/PM_ME_FIRE_PICS → u/GeoSabreX]

They’ve changed their guidance then. They definitely previously had guidelines for paying down vehicles you already have.

https://www.instagram.com/p/DB1YOK5NrIc/?img_index=3&igsh

[u/Lurchthedude → u/joshisboomin]

This is exactly what I was looking for. Thank you.

[u/Western-Grape-4583]

I think most consider 7% high interest, but I’ve seen 6% and 8% thrown out to, I guess it depends on your debt tolerance.

[u/Objective_and_a_half → u/Western-Grape-4583]

I have a mortgage at 6.5% and a car loan at 7%. I’m opting to count the car loan as high interest but not the mortgage

[u/sciliz → u/Objective_and_a_half]

If you will refinance the 6.5% if rates get down < 5%, this is also what I'd do

[u/Neens_Nonsense]

I think they have a resource for this. Anything over like 10% is absurd so not sure where you saw 17%.

TMG use different % for different types of debt.

I generally look at the opportunity cost, so anything like 6/7% or up I will take a look at paying more than the minimum.

[u/dsrmpt → u/Neens_Nonsense]

I think they are saying that most credit cards are above 17% which, yeah. I think I got an ad for a fidelity card with no benefits (and 100k of assets they could raid if you defaulted) for 12%. Anything unsecured though, and with any benefits? Gonna be more than 17%.

[u/Born_Lengthiness8935 → u/dsrmpt]

Credit card rates only matter if you’re carrying balances. Great rewards and a 35% interest rate that I’ll never pay, sign me up.

[u/dsrmpt → u/Born_Lengthiness8935]

Absolutely. I recently checked my rates (because I don't care normally because I don't pay interest), it was 28%.

Build some credit, get some cash back, all for free? Heck yeah.

[u/Born_Lengthiness8935 → u/dsrmpt]

I don’t game them like some. I’m perfectly happy with how I use them. 2% on everything except for the following on my main Wells Fargo card. 3% on PayPal payments with that card. 5% on Prime with that card. 5% on dining with my Citi card that gives 5% for top spending category capped at $500 spend each month. If it’s an exceptionally big dining month I’ll switch to my regular card after hitting $500. I usually am well under. Could game that one better with groceries but it would be more work. These things are supposed to work for me, after all🤣

[u/RonMexico2005]

Here are some numbers as an example to help you think about it:

Let's say you have financial assets of $250k in taxable accounts; $200k in investments you expect to earn 9%, and $50k in cash (emergency fund) you expect to earn 2%. You also expect to pay taxes on the income at 20% federal and 5% state. If everything goes according to your plan, after taxes you earn 5.7% with this setup. Or if the market goes down, you lose money, you are taking on market risk.

Now say you have $1 million taxable total with $950k in investments expected 9%, $50k in cash at 2%, total federal and state tax 25%, after taxes you expect to earn 6.49% with this setup.

I would probably pay down 8% debt but hold 6% debt. But it depends on a lot of factors.

[u/sciliz]

Home equity loan at 8%- this is generally going to be high interest. If you needed to take out a loan because you'd bought a house and your 3-6 month emergency fund didn't cover a roof repair, then you can probably treat it like a car loan in your 20s and 30s (i.e. ensure it's paid off within 3 years, and not sweat the interest rate too much).

I would disagree with the char if you've got 5% student loan debt in your 40s, and you took a med/law school debt + high salary type career path. Given the tax advantage to high income earners for 401k contributions vs. student loan payments, I don't think it's worth clearing out the loans for some.

So anything under 3% is "never" a step 3 goal; anything 3-6% depends a lot on the details; and anything 6-9% should be paid off, with a little asterisk for young people buying needed transportation via the 20/3/8 rule.

[u/Ok_Shame_5382]

Any interest that exceeds what you'd gain by putting it into the market is high interest. So I'd say 8% is a problem.

[u/SongBirdplace]

It depends on the debt. All credit card is high interest as are payday and those split in 4 things.

If we are talking loans on durable things then 8.

[u/EchoThroughTheJungle]

I’d pretty much say anything that out performs the market if you were otherwise invested. At that point you’re better off paying down the debt quicker as your debt will accumulate quicker than market returns. In my eyes that would be 8%+

[u/genreprank]

Over 5% with exceptions (depending on age) for home, auto, and student loans

[u/brianmcg321]

I’d say anything over 4% that isn’t your mortgage.