I know this question is only loosely related to economic theory per se, but I trust y'alls judgment. :)
Back when I was in college, before I learned about Austrian economics and all that good stuff, I ran up huge amounts of debt. At one point, I had around $12,000 of debt. Since coming to my economic senses in late 2007, I have put myself on a strict budget, and I now currently have about $1800 in credit card debt (with a 9% interest rate on the card). I'll have about $500 to put toward whatever I feel like, when I get my next paycheck.
I've heard some people say that you should never buy gold if you have any debt outstanding (though I've never really understood this saying). However, if gold is about to go through the roof, as many are also claiming, would it be better for me to put the $500 toward buying half an ounce of gold, or paying down another chunk of my credit card debt?
"Anticapitalist theories share in common an inability to take human nature as it is. Rather than analyzing man as a complex creature, anticapitalist theories tend to focus on what the theorist wishes man to be." - Isaac Morehouse
If I were in your situation I would pay my debt off 100% before investing in anything. Going from $12,000 in debt to $1,800 is a huge accomplishment that could be in vain if you miss any payments with 9% interest rate. That is only my opinion though and I don't see any harm in investing in an asset that will only continue to rise in dollar value each and every time another dollar flies off the printing press.
Buy gold or not you should call your credit card company and attempt to get the interest rate lowered as much as possible. I've heard of many scenarios where individuals have had great success in doing this.
Freiheit:f gold is about to go through the roof
Isn't it possible that gold has already gone through the roof? I mean, really there's no way to know. Lots of people say it's about to go through the roof, but if they were so convinced, they'd be putting their money where their mouths are.
Pragmatically speaking, supposing that the SHTF, what are you really going to do with a .5 oz of gold? You'd be better off to stockpile Levi's jeans, whiskey, canned food, etc.
Freiheit:I've heard some people say that you should never buy gold if you have any debt outstanding
As long as you're a debt-slave (especially high-interest, uncollateralized debt like credit cards!) it doesn't make a whole lot of sense to buy gold. You're still accruing interest on the debt at a pretty good clip. I know people who have $20k in debt but say "I have $5,000 in the bank". Well, kind of. But in reality, they have -$45,000 on balance.
$1,800 worth of debt is almost zero. $1,300 of debt is even less. Sounds like you could pay off the balance in full in a few more weeks. When you're out of debt, you have all of your net income to dispose of as you please. Fewer obligations, fewer bills that need to be paid, etc., and you can start taking advantage of things like "compound interest" working in your favor :)
My wife and I have been aggressively paying down bad debt (credit cards from college, honeymoon, wedding, etc.) It sucks and it's painful to piss away $1,000 a month to pay for beer that you bought in 2005, but as soon as the last payment is made (November, probably) we see two things happen:
1. We no longer write a $1,000 check to credit card every month
2. We have $1,000 extra in our bank account every month.
That's a $2k monthly cash-flow swing in our favor. Your example may not be extreme, but the principle still applies.
From there, you realize that you don't need a six-figure income to be wealthy or to enjoy your life or to go on vacations - because you're not pissing away money servicing old old debts. And if something bad happens, like say you lose your job, you don't need to worry about "How am I going to make the minimum payments this month" because you don't have any more obligations.
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David Z
"The issue is always the same, the government or the market. There is no third solution."
This is my personal opinion. Pay the debt. You know what you owe, you know how much the interest is. Get it cleaned up. Speculating on the price of gold is something people with capital can afford to do, not people who are already underwater. When you're debt free, then start to invest.
If you find something evil that wobbles, push it. - Gary North
Listen to the wisdom of Burt Blumert 'Never buy gold without your own money' [ Essentially don't be in debt or go into debt to buy gold ] The point of gold is savings and it is not really saving if you are going into or staying in debt to get it. I think if Mr. Blumert were still gracing us with his presence then he would of told you to pay off all your debt then start you way into gold. If you want to get into coin collecting more quickly then the Mises Institute makes it possible with the Ludwig von Mises silver coin. Silver coins are cheaper [ Floating somewhere around 17-20 dollars ] but are still precious metals. Its really is a beautiful coin, I actually just got my first today.There are other silver coins out there like the Canadian Maple Leaf, the Chinese Panda, the American Silver Eagle, there is even junk silver like dimes, quarter etc.
The Mises Silver Coin
'It is difficult to imagine any normal person wishing to meet Marx for a third time.' - Alexander Gray, The Socialist Tradition
Thanks for the wisdom, everyone. Looks like I'll most likely pay off that last chunk of debt first, and then start building up some savings in gold and silver. I already snagged a Mises silver coin, but I think when I start building up my savings, I'm going to stick mostly to bullion.
The coins are very expensive compared to the spot price. It's more a donation/collection act than a financial planning act.
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