I was riding high, had plenty of money in the bank and because of that I decided to pay off $26,000 worth of student loan debt from my wife’s masters degree back in January. Both loans were around $13,000 each and at 8.9% and 7.9% interest rates or something really high like that (interest rates for loans on post graduate programs are way higher).
Why Was This A Mistake?
I gave up liquid cash that I could have used to invest in my business for a sure thing that my wife and I would be paying roughly $300 a month less in student loan payments over the next 10 years. For years I’ve always been told that paying down debt is the right thing to do, but I believe when you’re trying to build your own business this attitude isn’t always the best. I believe I can always make more than a 8.9% return when I’m buying websites or other web based assets and for me to give up $26k so that I could have less debt was incredibly stupid.
Example 1: I buy a website for $25,000 that’s earning $1,000 – $2,000 per month (1x – 2x earnings multiple).
Even on the worst case scenario of a 2x earnings multiple a website I purchase for $25,000 making $1,000 a month without improvements to the monthly income (there always would be) I’d already be coming out ahead an extra $700 a month. Yes there is risk in any investment like websites, but with such a short payback period I believe I still come out behind by deciding to pay down debt instead of investing in my business.
What Do You Think?
I hate to woulda shoulda coulda because I believe that attitude is for losers, but I wanted to share my mistake because I believe I’ve learned a valuable lesson. Now what I’m not advocating is that you should buy that $1,997 course you’ve seen guru’s promoting because you can earn $50k per month by pushing a big red I’m an idiot button instead of paying your credit card bill. But when it comes to investing, if you know you can make something work (in my case – buying websites) then it’s probably a mistake to pay down debt with cash that could be used for investments instead.
Yes I know this blog is about making money on the internet, but what you do with your money offline can have just as big of an impact of how much you can earn offline. I really do want to hear some feedback on paying down debt vs investing so don’t be lazy and read this without commenting.