Sure you are paying less of an interest rate, but that money you are earning the 10% on is taxable income. So, 10% starts to look like 7% to me.
Dump it into a retirement account (Roth or 401K) and it's pre-taxed $$ going in. You're also paying off the 5% loan with after tax dollars.....but you're getting the full benefit of $$ invested to work for you until it's taxed upon withdrawl.
Also, you are factoring in risk, especially if you lose your job.
Where's the risk?.....if you have the cash to pay the note off?
Obviously you have made a lifestyle choice of borrowing money, but I think it will slow down your true potential.
I disagree. Let's use the example of a man who borrows $300K to start a business. He needed this capital to get his business off the ground....and he's now a profitable businessman. How did this slow down his true potential? It didn't. It afforded him the possibility of his true potential.
My parents make a 6 figure income, but their net worth is really low due to car payments, credit cards etc...
You're misuderstanding my intent. Let's say a man has $25K in the bank. His net worth is ......$25K (assuming he owns no other assets). He has the opportunity to purchase a $25K truck with cash or credit. He's receiving a ROI of 12% on his $25K wher eit sits. What does he give up (net) if he decides to purchase the vehicle with cash? What is his net worth if he does this? What's the fiscally responsible decision?
The golden rule is not how much you make, but how much you keep.
Solid rule.
I used to think just like GMMAT.
It's not "my" way of thinking. It's simple math. When it makes fiscal sense....we pay cash.