Would it be terribly stupid to take out a small personal loan ($5,000?) and invest maybe half of it in a CD or mutual fund or something else? I'm deeply in debt and need much more income than my job provides.
2007-10-05 06:14:41 · 11 answers · asked by Arthur 2 in Business & Finance ➔ Personal Finance
This idea is out of question. First a Personal Loan has to be amortized over the period of the loan, which means you have to pay Principal and the Interest. A Personal Loan is unsecured, which, the Interest Rate is higher than a Mortgage one.
As an example, you take a $5K loan for 60 months at a modest 8%, your P&I will be approximately $100.71 per month. You invest the $5K in a CD, at a modest nominal rate of 5% with monthly payment of interest, your monthly interest payment will be $20.83. The result is that you will have a negative cashflow of $79.88, which will put you MORE IN DEBT.
I will not say that the option that you presented is stupid, but an option that will deteriorate your financial position.
My recommendation is simple:
- Prepare a monthly detail of income and expenses to determine your actual cashflow.
- Besides each of the expenses include if they are fixed or discretionary.
- For discretionary, put a plan together on how you can reduce these expenses to the minimum and EXECUTE the plan.
- For all fixed, usually morgage, utilities, loan payments, look at options to:
- If Credit Cards - there are options for low introductory rates, which you should try to benefit through Balance Transfers. If you do this option, remember to cut the credit cards you are transferring to the new low rate introductory card.
- If you have an auto loan - seek for options to reduce the interest rate. There are several companies that offer Auto Loans at attractive rates.
- Do you have a house? Do you have equity? If this is the case a HELOC may be an alternative.
If all of the above does not result....look for another job or visit a credit counsellor for assistance.
2007-10-05 07:11:36 · answer #1 · answered by Ralph C 2 · 0⤊ 0⤋
Yes. Sorry but it would. To get a return that nets you an income higher then you pay on the loan would require significant risk and even if it paid off in the long run you'd have periods of months possibly when your investment was worth less than the loan and all the sleepless nights that would result.
The temptation then may be to sell at a loss and you'd be further behind than you feel right now.
lastly, most loans require a return of principal as well as interest during the term of the loan, where would that money come from? Most high yielding investments are not that liquid to allow you to withdraw small sums each month so your cashflow (the amount of money that you need to pay each month) would actually get worse as a result.
Nice try though, keep thinking and being creative. Top tip, find a need that lots of people have and come up with a way to solve it.
In the meantime turn to a debt counsellor, fortunately for you you aren't the first to be in this position.
2007-10-05 07:00:01 · answer #2 · answered by Anonymous · 0⤊ 0⤋
1
2016-09-28 02:41:28 · answer #3 · answered by ? 3 · 0⤊ 0⤋
Increasing your debt is almost always the wrong way to handle a debt situation. Sure you might get lucky and invest in a hot stock, but usually it doesn't work that way. By the way, you will never profit by investing funds from a loan in low paying CDs. I call these Certificates of Depreciation. You can get just as good of a return in some savings accounts.
If you are deep in debt, you might try meeting with a credit counselor.
2007-10-05 06:37:10 · answer #4 · answered by Anonymous · 1⤊ 0⤋
Yes, it's a bad idea. UNless you really hit the jackpot with the investment, you might lose everything and still have to pay for the loan. if you invest in something safe, you won't make enough to pay off the loan.
Do what I did--get a second job.
2007-10-05 06:22:38 · answer #5 · answered by Anonymous · 0⤊ 0⤋
At this site you can solve your problem really fast: HTTP://HELP.CREDIT-COMPARE.NET
RE Bad idea to take out Personal loan and invest it...?
Would it be terribly stupid to take out a small personal loan ($5,000?) and invest maybe half of it in a CD or mutual fund or something else? I'm deeply in debt and need much more income than my job provides.
2014-09-11 09:46:16 · answer #6 · answered by Anonymous · 0⤊ 0⤋
I believe that you have an incredibly general question which needs more information. However, if you own a home, your credit is decent, and still posses some equity it would be a good idea for you to refi and check into annuities. One a SPIA and another a deferred annuity. The SPIA or immediate annuity will allow you to have an additional income stream (a check on a monthly basis) to help you pay your debts, while the other "deferred" annuity would build up guaranteed interest for a period of time. You should look up a financial professional in your area for more clear advice.
I suggest looking one up on:
www.fhri.org
2007-10-05 06:36:45 · answer #7 · answered by Anonymous · 0⤊ 1⤋
You will find very useful this site for finding the best option for you WWW.CREDIT-SOLUTIONS.INFO
RE:Bad idea to take out Personal loan and invest it...?
2014-07-14 09:38:26 · answer #8 · answered by Anonymous · 0⤊ 0⤋
The interest you pay on the loan will be a lot higher than the interest you get paid on the CD. Bad move. Better to get a higher paying job or find something entrepreneurial to do on the side.
2007-10-05 06:20:24 · answer #9 · answered by Anonymous · 0⤊ 0⤋
Instead of looking for get rich quick schemes, work on living within your means.
Write down everything you spend money on for a two week period. I think you will find you are wasting lots of money. Get yourself on a budget and then work on paying off the credit cards one at a time.
A second job will help pay off those debts.
2007-10-05 06:34:19 · answer #10 · answered by bdancer222 7 · 1⤊ 0⤋