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Mark Cuban: Where to Put Your Money Right Now

By JLP | October 28, 2008

Yesterday’s Houston Chronicle basically reprinted this October 15th blog post by Mark Cuban: Where to Put Your Money Right Now.

His main point is that it makes no sense to pay interest on debt that is greater than the return on your investments. I agree. However, I’m not sure I like the idea of selling current investments to pay off debt UNLESS that debt is exceedingly high and you have no other means to pay it off.

Unfortunately, I don’t know a whole lot of people who have tons of debt on one side of their balance sheet and lots of investments on the other side. Usually high credit card debt is a symptom on poor money management skills and someone with poor money skills doesn’t usually have investments. All this means is that IF a person doesn’t have the funds available to pay off their debt then they’re going to have to make some decisions and come up with a different plan. But, he is absolutely correct in his pleading for American’s to get out of credit card debt! I’ll second that!

Topics: Credit Cards | 6 Comments »


6 Responses to “Mark Cuban: Where to Put Your Money Right Now”

  1. Alex Says:
    October 28th, 2008 at 12:45 pm

    The idea is if I have access to cheap debt…say a 0% credit card, it would make sense to max it out and draw it out as long as possible and keep the other money in at least a high interest savings account. You can also use a 5.0% personal loan to pay off a 6.8% loan and then use a 5.5% bond to pay off the 5.0% loan…etc. It’s all in the rate…you just have to make your minimum payments on time. People use debt to spend more than they have, you shouldn’t use debt until you don’t need money.

  2. Kevin @ The Money Hawk Says:
    October 28th, 2008 at 2:30 pm

    I think Alex’s method is extremely dangerous. He’s swimming with hungry sharks.

    People need to get out of credit card debt using any method possible. Right now though, I don’t think it would be wise to sell investments to do this; instead of taking a paper loss, you’re going to take a real loss on investments that are down an average of 20-30%.

    I’m for the old fashioned route; make more money or spend less (or both) and attack the debt with a vengeance. People trick themselves into thinking that debt is working for them instead of against them. It’s the reason why the majority of Americans are deeply in debt and sinking further. If you don’t jump in the water with the sharks, you won’t get eaten.

  3. Kitty Says:
    October 28th, 2008 at 10:24 pm

    I agree with Alex. It’s perfectly fine to borrow at 0% and earn interest on the money – as long as you are careful and have the money. Kevin, many of the people who play 0% game aren’t poor or in debt. They keep money on a high interest savings and can repay the debt at a moment’s notice if for some strange reason interest rate changes or if they make a mistake by using the same card for purchases accidentally. They usually have other money as well, so they aren’t “tempted” to spend what they borrowed.

    I do agree with JLP that there are not many people who have both debt and investments – other than mortgage. I am not sure now is the good time to sell investments to pay off mortgage. Depends on the rate of course. As to those who for some reason I cannot understand have both stock investments and high interest credit card debt – these people shouldn’t have had stocks to begin with except for maybe in 401K. If you have credit card debt, you have no business betting your money on the stock market. If you play 0% game, you need to keep the money on high yield savings or FDIC-insured money market. Otherwise, it is just gambling.

    Another thing to keep in mind when reading Mark Cuban post is that it specifically says that the advice is for those with debt and with less than 250K in savings/stocks. The first time I read his post I missed it, so I started to wonder why he suggested short term CDs for extra money instead of, for example, municipal bonds or highly rated corporate bonds. Then I noticed his “250K or less and debt” sentence and thought that maybe he thinks that whatever money left after paying off debt should be available for emergencies.

    I wonder what his advice would be for those who have no debt and have 250K or more.

  4. Denise Cave Says:
    November 1st, 2008 at 11:50 am

    The question I want to pose is regarding paying off CC debt with an IRA
    withdrawal. My 62 y.o. husbands position was eliminated with John Deere
    Landscapes. We have around $43,000 in cc debt with interest rates of 2.99 &
    3.99. (I work for financial planners @ $18/hr and average around 30-35
    hrs/wk – I am too embarrassed about the level of our debt to ask them my
    question) His unemployment will be approximately $300/wk. He is actively
    seeking employment and has two good leads, but we think employers are
    waiting to see what the election brings. His ultimate plan is to begin a
    landscape business with our son (who is currently applying for firefighter
    positions) in the event dh does not find something with a company. He wants
    to use part of of his IRA to dissolve the $43,000. If I understand what I
    have read correctly there is no penalty for early withdrawal but we will
    have to add it the the bottom line when we do our taxes. We are in the 25%
    bracket and I think the $43K will add an additional 3%. Our deductions
    include 15% tithe and other offerings, Cory’s education expenses, my self
    employment deductions (minimal) mortgage interest (low) and some medical.
    The account was originally a 401K with $145 when we rolled it into a self
    directed IRA – it is in a GWIB with Accumulator and although the balance is
    now $115K I am told we are protected by the GWIB. That being said, we are
    basically looking at taking almost half of the retirement funds out –
    besides the tax implications is this a smart move or not? I had developed a
    plan for getting rid of all the debt in about 18 mos using a snowball plan.
    One more piece of information, we do have a cash cushion of approximately
    $37,000 but he does not want to touch that so we can use it to a) live on if
    needed and b) help with the startup. DH feels that by paying off the debt
    using the IRA we can pretty much make ends meet with my salary and his
    unemployment – and maybe tightening up a bit. Once he starts working again
    with no debt we can step up the contributions into the IRA – I do understand
    the most we can put in is $20,000 including catch up payments.

    Sorry this is so long – I have all over the internet looking for an answer.

    Thank you.

  5. Denise Cave Says:
    November 1st, 2008 at 12:53 pm

    The question I want to pose is regarding paying off CC debt with an IRA withdrawal. My 62 y.o. husbands position was eliminated with John Deer Landscapes. We have around $43,000 in cc debt with interest rates of 2.99 & 3.99. (I work for financial planners @ $18/hr and average around 30-35 hrs/wk – I am too embarrassed about the level of our debt to ask them my
    question) His unemployment will be approximately $300/wk. He is activelyseeking employment and has two good leads, but we think employers are waiting to see what the election brings. His ultimate plan is to begin a landscape business with our son (who is currently applying for firefighter positions) in the event dh does not find something with a company. He wants to use part of of his IRA to dissolve the $43,000. If I understand what I
    have read correctly there is no penalty for early withdrawal but we will have to add it the the bottom line when we do our taxes. We are in the 25% bracket and I think the $43K will add an additional 3%. Our deductions include 15% tithe and other offerings, Cory’s education expenses, my self employment deductions (minimal) mortgage interest (low) and some medical.
    The account was originally a 401K with $145 when we rolled it into a self directed IRA – it is in a GWIB with Accumulator and although the balance isnow $115K I am told we are protected by the GWIB. That being said, we are basically looking at taking almost half of the retirement funds out – besides the tax implications is this a smart move or not? I had developed a
    plan for getting rid of all the debt in about 18 mos using a snowball plan, but with our income significantly lowered….
    One more piece of information, we do have a cash cushion of approximately $39,000 but he does not want to touch that so we can use it to a) live on if needed and b) help with the startup. DH feels that by paying off the debt using the IRA we can pretty much make ends meet with my salary and his unemployment – along with some tightening up. Once he starts working again
    with no debt we can step up the contributions into the IRA – I do understandthe most we can put in is $20,000 including catch up payments.

    Sorry this is so long – I have all over the internet looking for an answer.

    Thank you.

  6. kitty Says:
    November 3rd, 2008 at 10:56 am

    Denise, how long will this low rate last on your CC debt? This is the main question IMHO. Also, is your credit rating good enough that you can take advantage of 0% offers if your rate goes up?

    Personally, I don’t see any reason to cash in IRA in repaying low interest debt unless it is in danger of rates go up soon. In your place I’d pay as much as I could of an account where the interest rate goes up sooner with the goal of repaying everything before the rate goes up. If it isn’t possible, I’d get a 0% card a month or so before the rate goes up. With a 0% rate, I’d even put extra money on a high yield savings and paid the minimum, then as 0% period draws to a close, took everything from this savings account and paid the card; transferred remainder to another 0% offer and continued.

    I wouldn’t touch the IRA unless the interest rate on any of the cards goes up to make paying extra taxes on IRA withdrawal worth-while.

    Disclaimer: I’ve never had consumer debt, so I ignore Dave Ramsey’s “psychology” and pay attention only to what makes sense mathematically i.e. what is better for the bottom line.

    Think about it this way: your savings and your debt is one pool of money, some parts positives and some parts negative. You’ve got to think of the optimal strategy that increases the value of this pool of money in the most efficient way. Dave’s method is based on people getting sense of accomplishment from eliminating one debt. I believe it’s possible to feel accomplishment from having the amount of money you have (savings minus debts) increased.

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