Selling Silver to Pay Debt

[scrapper2010]

Reading Hawkeye's post got me thinking again about my own situation. I am trying to pay down my Home Equity line of credit. I owe $15,000 on it and I'm paying 3.75% interest. I'm currently paying $350 per month on it and at that pace will have it paid off in about 4 years. I wanted to get some opinions on whether I should sell some silver to help pay it down.

[Hawkeye]

I guess that's kind of my situation too. I could fairly easily sell some silver to pay off debt. My problem is this- I have never sold silver. If I desperately needed to pay something off, I would. Personally, I wouldn't sell silver to pay off that kind of debt. If it was a credit card with 20% interest, then I would definitely be selling.

[68Camaro]

I think I provided my view in Hawkeye's thread. The only reason I would sell silver now is if I thought there was more than a small chance that silver would go down in price and stay down for any significant length of time. If you believe this is a risk, then absolutely you should sell and pay off debt. If not, and you have a steady dependable income (as best you can predict), then no, just pay it off over the 4 remaining years as you are, and continue stocking PMs.

All my statements on this presume that anyone considering this are not living high, buying unnecessary items, and you are investing any spare FRNs into PMs. If you're wasting money on unnecessary consumer stuff rather than investing, you should first stop those purchases. Then put that those extra FRNs into either debt reduction or PM acquisition, or both.

[fasteddy]

scrapper and hawkeye, from experience. That money you have borrowed is cheap. Between the two of you the highest is 3.75%. Pay the loans until maturity. Stack the silver while you can. There maybe a day when you HAVE to sell the metal. But as I see it, it isn't today. When I was in a financial jam I was very glad i had stacked silver/gold. I had to sell at $6/$500 oz. I am so glad I had it to sell. I can calculate what that metal value would be today but I dont, The trade off is I still have my loved one so I am not looking back.

The other aspect is that money is getting cheaper by the day...next year your $350 monthly payment may only be worth $300 or even less and your metal may be worth $60 oz or more.

[Sheikh_yer_Bu'Tay]

The interest you pay on an equity line of credit is tax deductible. You pay it in taxes, or pay the mortgage interest.. It's a wash, same money, either way.

Hang onto that silver for any unforeseen emergencies. If you never have to dip into it for emergencies, you will have a nice nest egg for retirement.

And Camero is right, eliminate any "fluff" spending you have. Make a sound budget and stick with it.

[scrapper2010]

Yep 68Camero you got it, we're certainly not living high on the hog. We're pretty focused on getting out of debt. And yes Sheikh, the PCL interest is tax deductable, that's a pretty good deal. I do get comfort out of owning silver, and I agree, stacking slowly here and there is a great way to save money. Such a great hobby too. You get to buy stuff and save money at the same time!

[Engineer]

You can't live in silver.

The main question in my mind is whether you also have a mortgage. If a HELOC was the only debt on my house, I'd dump the silver just for the peace of mind of knowing my house was debt free. If I had a mortgage, it would depend on how big the mortgage was and how much the house was worth. If you're nearly upside down, selling the silver to pay off the HELOC would be much less attractive.

I can see the point of people who like the 'cheap' money offered by a mortgage, but I've always hated being in debt. The day I bought my first house I went home from the title company with my head hung in shame knowing that I'd just committed myself to a decade and a half of debt servitude. When I looked at the amortization schedule as I was making my first payment, the amount going to principal was shockingly low, so I decided right then and there to make an extra principal payment every month. A few months later I got a bonus, and rather than spending it on toys or a vacation, I saw it as an opportunity to buy myself out of 10 months of interest payments. Then I started making triple principal payments, and 4 1/2 years later the house no longer belonged to the bank.

The strange thing is how my mentality has changed since I got out of debt. I used to want to buy toys, and knowing I didn't have the money for them just seemed to make me want it more. Now that I don't owe a dime and have accumulated a bit, I don't have any desire for status symbols and actually prefer to look poorer than my neighbors.

[scrapper2010]

I know what you mean. For the last couple years I've put every spare dime I could scrape together into my mortgage. I'm in the sixth year of a 30 year mortgage. I've been putting about $2500 extra towards it per year. I wish I could put more. That's why I'm considering selling some silver to pay off the PCL. The sooner it's paid off the sooner I'll have $350 extra each month to put toward the original mortgage. If I can keep up paying $2500 extra every year I should have the house paid off in about 12 years, which would be good. If I can pay it off sooner, all the better.

[Engineer]

Being a math nerd, I can't help but run the numbers:

If you could get rid of the PCL today, the first extra $350/month you could apply to a 5% note with 12 years left would save you $116 in interest, but that savings would decrease as you had less time left to pay. Doing it every month for the entire 12 years would save you a total of $8352.

Assuming you owe about $15,500 on the PCL, and have enough silver to pay it off completely, you'd save another $1216 in interest there, for a total savings of $9568. Therefore, the return on investment of selling the silver would be (15,500+9568)/15500=1.617

Multiplying today's silver price times the result would mean that you'd be better off selling the silver if you aren't sure you could sell it for more than $54.45/oz...and that's assuming you could sell it without being taxed on the gains. If the IRS determined you had a zero cost basis (no receipts), you'd need $72.60 silver to break even on holding it vs paying down the mortgage.

The nice thing here is that the 1.617:1 ratio will apply to silver prices even if we get a quick bump up to $50/oz. At that point, you'd need confidence that silver would go over $80.85 to justify holding the silver versus paying down your mortgage. That makes it worth waiting for a few months to grab a nice exit point, but keep in mind that you're losing $2.61 per ounce of silver to your potential savings for every month you hold it.

[68Camaro]

Just a question to you all - where do you all think silver is going? Your belief on this, and your level of conviction in that belief, has to be the major factor in your decisions. Is there grounded data to base your belief on? Or is it just hope, or fear?

Doing a simple poly fit through the annual average annual data since 2003 (and deviating on the last point by using Friday's close for 2012) suggests an extrapolated value in the mid 70s by 2017. Of course an extrapolated curve fit is worth squat without some truth in underlying physical behavior. So let's touch on that.

If silver is increasing in price over 9-10 years, one should ask why. Why is the price going up so dramatically, consistently (except for brief dips following which the trend continues). Is this a bubble, speculation? Or is it something else?

Is it because of decreasing availability? Impending peak silver? Increased demand? Decreased liquidity (more being held as bullion rather than industrial/recycle)?

Is it because of background money printing suggesting an inflation model greater than government data? (Does anyone actually believe the government data at face value?)

If this increase is NOT just speculative, then the poly fit is probably a reasonable expectation. And that assumes nothing really bad happens, just further increases in the rate of inflation.

It's very much a personal decision, but one that I've decided on for myself. Everyone needs to be comfortable with their own convictions, and also adjust with each bit of new data.

[68Camaro]

A simple plot and extrapolated fit through 2017

silver price, historical and extrapolated.JPG (25.21 KiB) Viewed 554 times

[Sheikh_yer_Bu'Tay]

Camero, I look back even further. An ounce of silver equals roughly 14 90% dimes. In 1964, those 14 dimes equaled $1.40. An ounce of silver was worth $1.40 in 1964. The very long term trend is silver will go up as the value of our FRN's goes down. Even if one day there is a new denomination of our currency, I think silver holders will benefit from the currency swap. You are right, everyone has to make up their own minds as how to build wealth.

Engineer has some great numbers, but does not factor in the tax deduct-ability of the real estate mortgage interest. None the less, he is right..... It is far better to be debt free than to be a slave to a bank.

This is a great thread! Good comments!

[68Camaro]

I only went to 2003 because "something different" has clearly happened since 2003 with regard to perception of value of gold and silver during that period to now. That period is what is most pertinent to plotting trends.

I am riding a fine line here, personally, because I abhor meaningless debt. But there is a type of debt that can have value, as a tool, if you are disciplined and can handle it. If you know you can't handle it, then DON'T DO IT! Some people are able to safely drink wine or beer - one or two - and stop. Others should never touch the stuff. You have to know your limits and stick to them.

As to being debt-free? Truth of the matter - especially if you want property to live on - we can never truly be debt free. We can only minimize it, limit it, control it. You will always owe a debt of taxes on your property, and if you fail to pay that you will lose that entire investment. The records are full of hundreds of thousands of sad cases of aged people who owned their property and had savings, only to have them taken away by inflation and the tax man, their property sold on the courthouse steps for recovery of back taxes. To be secure in your ability to be able to pay your taxes over your lifetime, you need something unaffected by inflation to accompany your property. A stash of PMs is as important a part of your mortgage payment plan as your paying of the mortgage itself.

[scrapper2010]

Thanks for the thoughts everyone. Very good stuff to think about. What I could do is sell some silver, keep some, and not buy too much more for the time being while still plowing extra money into the mortgage. Then once that's down to a comfortable level, start stacking more aggressively. Of course by then silver could be $150/oz.

[Diggin4copper]

I only went to 2003 because "something different" has clearly happened since 2003 with regard to perception of value of gold and silver during that period to now. That period is what is most pertinent to plotting trends.

I am riding a fine line here, personally, because I abhor meaningless debt. But there is a type of debt that can have value, as a tool, if you are disciplined and can handle it. If you know you can't handle it, then DON'T DO IT! Some people are able to safely drink wine or beer - one or two - and stop. Others should never touch the stuff. You have to know your limits and stick to them.

As to being debt-free? Truth of the matter - especially if you want property to live on - we can never truly be debt free. We can only minimize it, limit it, control it. You will always owe a debt of taxes on your property, and if you fail to pay that you will lose that entire investment. The records are full of hundreds of thousands of sad cases of aged people who owned their property and had savings, only to have them taken away by inflation and the tax man, their property sold on the courthouse steps for recovery of back taxes. To be secure in your ability to be able to pay your taxes over your lifetime, you need something unaffected by inflation to accompany your property. A stash of PMs is as important a part of your mortgage payment plan as your paying of the mortgage itself.

Interesting... If my house is worth $200,000 and I pay $2500 in real estate tax each year, that means I need 2 oz +/- each month for the taxes (assuming the worth of silver keeps up with the rise in taxes) I like that thought for my elder years... gonna make it a point to stack 2 oz per month to put into my "Im staying here till I die" fund..

[NHsorter]

Ha! 2oz a month? Don't move up here. I'm at over 15oz a month right now. And I'm not in some McMansion or anything crazy.

[Engineer]

My property taxes are right around 5oz/month for what many would consider a starter house.

[Delawhere Jack]

My property taxes are right around 5oz/month for what many would consider a starter house.

Jersey?

[Lemon Thrower]

as a simple matter of math, the answer is don't sell the silver - your interest rate is less than the expected appreciation in the value of the silver.

but that is like saying should you stay at the casino because you can count cards. just because you have some slight advantage does not mean you won't go bust, and debt increases the likelihood you go bust.

jim sinclair - a guy who knows more about the pm's than perhaps anybody, preaches to avoid leverage in pm investments.

so as a basic premise, i would not have gone into debt to buy silver (if that is what you did).

realize that silver is volatile, the market is manipulated, and a hedge fund or bank blow up, greek default, terrorist act, or mideast war escalation could result in the risk-off trade and knock 30% off of silver in a day.

the long term prospects for silver are excellent but it is a very volatile metal.

[knibloe]

I am in a similar situation with my HELOC. Last year, I told my wife that I would be willing to sell my silver to pay off the morgage. She countered with "why don't you sell some of your extra guns as well?"

Needless to say the whole discussion was over. I still have my silver and my firearms. And I still have the morgage .

And just for BO. I amstill klinging to my God as well.

[ZenOps]

Its not just the interest that you are paying on debt, but its also the interest on what you would be making otherwise.

As much as everyone on here loves their metals, Albert Einstein did have a solid point. The most powerful force in the universe is compound interest.” Albert Einstein. Admittedly, you can only find a "safe" 1% or so out there, but then you have to factor in that the "FED" has made wage slaves of near the entire of america living on 6% compounded every year.

It is still useful to be in paper money for as long as it makes interest, and you can still exchange it for real things. If things do start collapsing, you might want to have some paper cash ready, as there will always be a segment of the population that will cling to paper dollars for dear life - and sell their HDTV for a $20 bill so that they can get some overpriced food. Just like there will always be a segement of the population that will love to have silver, there will always be a segment of the population that will refuse to accept it.

Silver is a store of value, it does not grow wealth. Buying two sheep and having a flock of sheep a couple years later grows wealth.

I stack nickel. Waiting for the manipulators to bring the hammer on Silver.

[silverflake]

Hey NHsorter, regarding property taxes, I lived in Vermont for 6 years - I feel your northern tax pain. Let me tell you why I moved to Virginia...

Just keep stacking gang.