Given that S&P 500 Index has been increasing at 6.3% on average every year, does it make sense to pay off debt with interest rate lower than that?
If you currently have 50k in index funds and have 10k in debt with 4% interest rate,
50 * 1.06[sup]n[/sup] - 10 * 1.04[sup]n[/sup] will significantly be bigger than (50-10) * 1.06[sup]n[/sup] and will always be bigger as long as the rate is under 6.3.
So to me, paying off anything under 6.3% interest rate doesn’t make sense in the long run. Am I thinking correctly?
TL;DR : If I can, should I get all the loans I can with interest rate beneath 6% and invest it all in index funds?
If you currently have 50k in index funds and have 10k in debt with 4% interest rate,
50 * 1.06[sup]n[/sup] - 10 * 1.04[sup]n[/sup] will significantly be bigger than (50-10) * 1.06[sup]n[/sup] and will always be bigger as long as the rate is under 6.3.
So to me, paying off anything under 6.3% interest rate doesn’t make sense in the long run. Am I thinking correctly?
TL;DR : If I can, should I get all the loans I can with interest rate beneath 6% and invest it all in index funds?