Ask Paul: We borrowed money to buy shares, when should we repay it?


Q. My husband is 41 and I am 34 and we are DINKS.

We are in a very good financial position with no debts other than share investment loans (equity from our principal place of residence with interest rate of 3.99%) and we have no financial dependants.

There is a lot of information about paying down bad debt quickly and the benefits but there is very limited advice around paying off good debt, in our case investment loans.

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Could you please provide your advice on when is the right time to pay down these good debt loans if they are only there for tax purposes? - Crystal

A. Good question, Crystal. I do bang on about bad debt quite a lot - things like credit cards and other high-interest consumer debt.

Getting rid of this sort of debt obviously should be a priority.

But paying off good debt is an interesting issue.

Technically it is pretty simple. In your case the debt is costing you 3.99%. As long as the return from your shares is above 3.99% you are creating wealth. Historically this has certainly been the case.

In fact, the dividends alone should be in excess of your repayments.

So as a couple with no dependants and only debt on your investments, it is not a bad idea to leave the debt as it is. It makes sense to clear debt before you stop working but in your case this may be decades away.


Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
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