Would You Rather… Cash vs Debt Edition

Happy Friday y’all!

As you know, I’m a big believer that knowing your personality plays a HUGE role in how you manage your finances – for the better or the worse. It’s no secret that I personally choose paths that excite me more than other, possibly “smarter,” financial routes, but I also know myself well enough that if I can’t stay motivated then none of it really matters in the end.

The way you answer today’s question will say a lot about yourself as well, and particularly how you trust yourself around money.

Let’s see how much harder this one is to answer than our last one on whether you’d go to jail for a year for a million dollars in return ;) Something tells me you’ll have to think a little longer on this one, haha…

Okay, here we go…

Would you rather…

Have $250,000 in cash but also $250,000 in debt?
Have $0.00 cash and $0.00 debt?

POW! Good one right? In both cases the end result is the same here ($0.00 net worth), however each side comes with a heavy set of circumstances. And for arguments sake, let’s assume that the interest rate on this debt in option A is equal to what you can expect to get back in the stock market long-term (8%’ish), and that it also doesn’t come with an asset you can sell to quickly wipe it away. It’s just straight up debt that you have to pay off the old school way ;)

How do these two routes make you feel? Which has the best potential for long-term success with your history? Which one *excites* you more?

Personally, I almost always choose option A in these cases. The idea of having *something* saved up/invested vs nothing almost always outweighs everything else to me. Cash is so powerful – and empowering! – that it brings not only a world of opportunities to your fingertips, but also a world of confidence at the same time.

Just knowing you have the money for opportunities is also an incredible feeling. Anyone can spend money, but to store up cash like that? Completely different story. And with being able to kill all your debts at any point you want too just adds to the empowerment. Even if all you do is invest it all (of course if you don’t trust yourself to use it wisely then we all know which option you should choose!)

So to me it comes down to not only the confidence/exciting factor, but also the fact that most people have a much harder time saving money than they do spending it. Even if it’s “good debt” like a home or education/etc. If you start at a level playing field with $0.00 and $0.00 (which, btw, WE ALL DO!) the odds are stacked against you unless you were smart enough to read blogs like this from the start ;) Something I didn’t even do myself, and brought a staggering $350,000 of debt to the table (mortgages) before I began paying attention to my own finances, ugh.

Again, much easier to spend than to save.

But of course, choosing option A also means you now have to deal with that nasty-sized pile of debt too. And there’s something to be said about having a clean slate and starting from the ground up – even if you have no padding to fall back on. I’ve never had any debilitating amounts of debt before so fortunately I don’t know what that feels like, but I’m sure if I had my answers would be quite skewed here. I know many of you are dealing with this in real life now and in some cases have all the debt but none of the savings, so I’m super interested to hear what y’all have to say about this. And I’ll do my best in the meantime to get the magical Would You Rather Fairy over there as soon as possible ;)

All this to say though that our history and personalities play a large roll in how we deal with our money. Not only in answering ridiculous(ly awesome) questions like these, but also in how you manage your finances on a day-to-day level as well. It’s all very much personal, and it all very much MATTERS.

So… Which option are you leaning towards here? Lots of cash with equal amounts debt, or a completely blank slate with none of either staring back at you?

Drop your answers below and let’s watch those brain cells of yours start percolating… I guarantee it’ll be a fun discussion to join :) And quite possible that you’re dealing with this in your life today! Lots to appreciate and work on in both cases.

PS: If you listen to our podcast you might have heard a similar question we posed there as well – but more along the lines of home ownership. Our guest asked us what we’d do if someone gave us $250,000 to buy our dream home outright, and my answer was to take the cash but keep on renting (big shocker), while my beautiful co-host chose to invest the money in rental real estate instead, and the poser of this question – Steve Stewart – chose to actually get the house. No right or wrong answers here, except of course the one that is right for YOU.

[Photo cred: demibrooke]

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  1. Emma | Money Can Buy Me Happiness February 26, 2016 at 5:20 AM

    This is a hard one. I’ve switched between A & B but ultimately I think I’d have to go with the 250k – both in the red and in the black. I’m ace at paying off debt, like a ninja. And while I’m a good saver, I’m no ninja at saving. More like a white belt, maybe a yellow. I’m pretty sure I could nail that 250k loan within a reasonable enough timeframe, simply because I know that the 250k I have in the black is growing and doing it’s thing. I’m totally comfortable with debt (too comfortable probably) so I guess that comes into it. I use debt to grow wealth (by buying real estate) and I could buy a lot of houses with 250k, with a 10% downpayment that could get me into maybe 8 different properties. Then again, a bank probably wouldn’t lend to someone with 250k unsecured debt. Oh man, I don’t know. Such a tough call!

    1. J. Money February 27, 2016 at 9:16 PM

      Haha… It’s a fun one to think about, that’s for sure. Especially with all those ways to invest the cash! Totally different picture if you indeed go that route vs just sitting on it the whole time (in which case it would be a total losing battle).

  2. Brian @DebtDiscipline February 26, 2016 at 5:36 AM

    For me it would depend on the type of debt. If it was a home mortgage I might lean towards A, if it was consumer debt (unsecured) I’d lean towards B. I could just take the $250 in A and pay off the debt, but might be tempted to do something else with it.

    1. Liz February 29, 2016 at 12:37 PM

      Ooh, good answer Brian! I hadn’t though of the secured vs. unsecured angle on the debt, and probably should have. I’m with you -if the debt is in an asset that is likely to increase in value (and that could be a growing business with serious potential, as well as a home), then I’d take option A.

      If it’s not, then I’d take B. I keep going back to 0 and starting all over, it’s not that scary of a scenario to consider again.

  3. Chris Dismuke February 26, 2016 at 5:51 AM

    To me, this is a no brainer: I’d rather have $250k in cash and debt. 8% interest on of that magnitude is pretty scary, but in the real world, I could probably refinance and bring the rate down…. heh.

    Without pursuing the refinance option, I considered mortgage-like debt, payable at 8% over 30 years and that comes out to about $1800 per month, so my $250,000 in cash gives me 130+ months (10 years!!!) to figure something out.

    The 0/0 scenario is much less attractive becasue in the event I run into trouble the next day, I have no assets (CASH!) to lean on and immediately need to find work to sustain any sort of expenses.

    Bottom line: regardless of your obligations (debt) $250k is a life changing sum of money that gives you a lot opportunities and time!

    1. J. Money February 27, 2016 at 9:17 PM

      Yup! Exactly my thinking…

  4. Kim @ Needing The Dough February 26, 2016 at 6:40 AM

    Oh good one! I’d be tempted to take the cash and debt – the cash would go far to helping our family reach our short- & medium-term savings goals. The terms of the debt would be a massive factor in this. We have about $20K left to pay off on all our debt, and I couldn’t imagine taking on 1/4 million in debt right now – especially when we’re so close to being debt free. The terms of the debt would need to be pretty sweet for me to take on that much debt. I’d choose A with great terms for the debt, else B.

  5. Latoya @ Femme Frugality February 26, 2016 at 7:05 AM

    Ha! I’ve went back in forth in my head several times while reading this! But I will have to say that I’ve landed on B. I’m in debt and I do have money saved. It doesn’t feel empowering at all. I sort of feel hopeless. If the slate was wiped clean, I know there would be opportunities to make more money and if I were smart as I am now about debt, I’d avoid it like the plague.

    1. J. Money February 27, 2016 at 9:18 PM

      No shame in that ;) We’ll have to throw you a party online once you’re all cleared up 100%!

  6. Elle February 26, 2016 at 7:14 AM

    Good question J!
    I think I’m leaning every so slightly towards A. I feel like there are so many ways you can use that cash and of course, I’d have a plan on getting on getting rid of debt.

  7. Ryan from Tucson February 26, 2016 at 7:27 AM

    I have been in Debt for almost 20 years ( Neg Networth) so I would gladly take option A.
    Debt Free is my dream….

  8. Roy Largo @ Band of Savers February 26, 2016 at 7:32 AM

    I’d definitely go with Option B but it would be had to pull the trigger and actually write the 1/4 million dollar check. I feel confident in my ability to earn enough to build up from ground 0 and couldn’t stand having that debt hanging over my head. My church leaders have preached about to importance of avoiding debt for the past 150 years so this mentality has been engrained into my since birth.

    I also think that, knowing my personality, this would give me the greater net worth in the long term. If I had the $250k in the bank and knew that I had it to fall back on incase something happened I would feel a lot less motivated to hustle and build up as much cash as possible, even knowing that the debt is hanging out there because the could be planned for and wouldn’t happen sporadically. It’d be easier to get sucked into coast mode. But if I truly had nothing to fall back on in the case of an emergency I know that I would be extra hustling to make as much as possible to build that cash reserve as quick as possible, thus jumpstarting my net worth accumulation.

    1. J. Money February 27, 2016 at 9:20 PM

      True true, you might lose a little bit of that edge feeling comfy w/ the $250k for sure… Though, your hustle in that case might even be MORE if you know you had $250k to also pay back?? I hear ya on the church & debt though – there’s a good reason it’s been preached for actually *thousands* of years all through the bible!

  9. David February 26, 2016 at 7:44 AM

    I’m going with option B I think I’d rather be totally broke but not owe anyone a single penny than have $250000 but owe an equal amount. Usually you’re intrest earned on many investments is far less than the intrest owed on your debt at this time in history. Intrest rates are 1% or less on a savings account or slightly more with an IRA. However the intrest rate on money owed to say credit cards (10% to 29.99%) payday loans (?%) and loans for people with less than excellent credit (?%), medical bills (?%) are staggering. So if I had equal amounts of money vs debt I clear the table and start over, assuming I was still alive the next day to start earning again.

    1. J. Money February 27, 2016 at 9:23 PM

      Yeah, interest on savings is worthless so you couldn’t keep all the $$ there as it would def. be a losing choice. However I disagree with the rate being “slightly more” invested. I’m pretty confident in the 8% average that the market returns over time, and since I mentioned the debt in this case is also at 8% I think it wipes away some of the more uneven variables to the question. But I will say 8% guaranteed rate of return on paying off debt could be a lot more desirable than an *average* of 8% depending on how long we’re talking… Still, thanks for hopping in and playing along :)

  10. PhysicianOnFIRE February 26, 2016 at 7:53 AM

    I’ll take the Zeroes. I’ve been in a similar situation, deciding between taking out a mortgage or selling taxable investments to buy the home. I went with option B, and would do it again. In my case though, avoiding debt didn’t bring me back to 0 cash. It’s great to be debt free!

  11. Sarah Noelle @ The Yachtless February 26, 2016 at 8:01 AM

    Oh, goodness. As long as I could camp out with a friend and eat their food while I waited for my next paycheck, I’d choose $0 and $0 any day. The thought of my actual current amount of debt suddenly ballooning up to five times its size would psychologically be too much for me to handle. Whereas the idea of starting back at zero fills me with excitement. :)

    Actually, come to think of it, either choice would be okay: if I had $250K in cash and $250K in debt, I’d just immediately use the cash to pay off the debt and end up in the same place anyway.

  12. Isa February 26, 2016 at 8:04 AM

    I would go option B, in thr long run debt increaces at a higher rate than rated for savings, well at leats thats the dinamic here in my country, my husband and I save to pay our mortage in less than 10 years because 30 years later we would end up paying double the amount also having no debt is an empowering feeling, specially if you kill your own debt thought savings. Basically our case, you can save all over again

    1. J. Money February 27, 2016 at 9:25 PM

      Paid off mortgage in 10 years is dope!!! I don’t know where you live, but I wish they’d implement that over here so that people wouldn’t take forever (30+ years) paying off their own mortgages and then refinancing a cple more times and pushing it to 40-50 years! :)

  13. Curtis @ PayoffmyRentals February 26, 2016 at 8:13 AM

    I’m with David. Give me B. I’ve been living A (almost) for some years now.

    8% interest is a drag on your financial and lifestyle nimbleness. Even if you try to offset it by putting the 250k in the stock market, now you accepted risk + debt.

    I want A. I’ve been working my butt of towards A for several years now. For example, I started with 250k of mortgage debt 6 years ago and am now looking at the last $4,600 and 7 rental properties owned free and clear proving a NET (After taxes, insurance, vacancy, repairs and property management fees) income of $2,500 per month. I could leverage to the hilt right now, but I don’t want the A scenario you mention. I want the freedom of b…B…B!!! ;-)

    I’ll be there next month. $0 debt. Bring it on, Baby!!!

    1. J. Money February 27, 2016 at 9:27 PM

      WOW! Incredible! Way to freakin’ take control and OWN your situation there! eBeers on me next month! :)

  14. Tintri February 26, 2016 at 8:18 AM

    This is a wicked question, I always wanted to hear your views on something like this. I am in a similar position except my debt is not that high. I also started from a position of $0 cash and high debt. Now I have more cash than debt. I know it goes against some school of thought but I’m comfortable with it this was because the cash give me peace of mind and it helps in that I use it to make more cash to pay down the debt. I managed my credit score so I could consolidate then into low interest loans. As I said it works for me. Love your blog!

    1. J. Money February 27, 2016 at 9:28 PM

      Thanks Tintri :) I’m totally fine with holding debt where it makes sense – but only because I trust myself to handle it responsibly these days. If I didn’t it would be option B all day every day!

  15. JayP February 26, 2016 at 8:20 AM

    Or another way to think about it – You have a paid off house worth $250K and no savings whatsoever. Would you go out and get a $250K mortgage if it was available to you?

    1. FI$ Guy February 26, 2016 at 9:18 AM

      This is exactly the way I was going to rephrase it, as stolen from a certain debt-free guru. For some reason the idea of taking on $250,000 in debt is emotionally abominable, but it’s no big deal if you already have $250,000 in debt.

      1. JayP February 26, 2016 at 12:52 PM

        Yes I’ve heard him use that example and yes I stole it :)

        1. J. Money February 27, 2016 at 9:30 PM


          Oddly enough in this case I’d just keep going forward w/ the plan and start saving money vs taking out the debt on something I just paid off (or else why pay it off to begin with – hah).

          But you’re right – pretty much the exact same thing, eh? And with much lower interest rate!

  16. Nancy February 26, 2016 at 8:24 AM

    I would take option A assuming my debt was from a mortgage, in which case, I would be building equity on that side of the equation. Lucky for us, we bought our house in Austin, TX and have been fortunate to have never been upside down on our mortgage.

  17. Lisa O February 26, 2016 at 8:26 AM

    Thinking about these options ~ either way you really have nothing! So I am leaning towards B ~ as long as I have a house/car/food/clothing and I have -0- debt I think I would feel free.

    It would be a must for me with this clean slate option to be able to change the game up and start saving now! My mind set is that saving for tomorrow is a fun game but to pay off debt just cannot be as fun!

  18. Greg Rutkowski February 26, 2016 at 8:26 AM

    If the debt is rental property debt, then I’d gladly take it. If it was straight up credit card debt, I would still probably take the $250,000 in cash over zero money know I can invest it to pay off the debt.

    Best of luck.

  19. Ken February 26, 2016 at 8:30 AM

    I actually had to answer this question for myself a few months ago – $20,000 in cash and $20,000 in student loans, or nada and nada.

    Because the cash was stuffed in a savings account at the bank earning little more than nothing, and I was paying some $35 a month in interest on the loans, the balance was out of whack. It also bothered me that I was paying someone else for the privilege to hold on to debt that I didn’t have to keep.

    I decided that being debt-free mattered more to me than keeping the cash around or investing it.

    1. J. Money February 27, 2016 at 9:32 PM

      BOOM! Congrats on being student loan free, my man! That’s huge!

  20. AMW February 26, 2016 at 8:55 AM

    B-There is nothing like that debt free feeling! Wish I could bottle that stuff and just let people get a whiff of what that is like!

    1. J. Money February 27, 2016 at 9:33 PM

      Haha… “Debt-Free Cologne” – hurry up and market it to Dave Ramsey!

  21. Jason February 26, 2016 at 9:17 AM

    I would rather have the $250k in debt and the $250k in cash. As you stated, you can always invest that $250k, and as long as you are getting a better return than the interest you are paying-winning.
    Not to mention…even if you just put half of the $250k towards the debt, and slowly pay off the rest-you still have $125k cash in hand for a rainy day/emergency fund which to me is far more comfortable than having $0…Great post!

  22. Money Beagle February 26, 2016 at 9:20 AM

    I think I’d actually go with B, because it gives you a fresh start and a clean slate and you can start writing a brand new story. No matter if you have the cash in the bank, the $250k debt is still something hanging over your head and that you have to wake up knowing is there. I look forward to waking up with $0 debt! One day!

  23. Penny @ She Picks Up Pennies February 26, 2016 at 9:40 AM

    KISS, right? Definitely option B for me. I’m all about simplifying. Debt stresses me out (hello, all my rant-y posts about my mortgage!). While I realize I could be investing and growing the $250K while paying off the debt, that just seems taxing. I’d rather hustle my way up from 0 and put all of my mental energy into that.

  24. Early Retirement Actuary February 26, 2016 at 9:41 AM

    Interesting question J$,

    Option A seems like the best choice assuming no prepayment penalties on the debt. I would take the cash asset in Option A and use it to reduce the liability to a level that made sense based on my risk tolerance at the time. Plus, I could use Option A to replicate Option B, but I couldn’t use Option B to replicate Option A. No lender would let me lever up that hard into a cash asset, and there would be some nasty transaction costs even if they did!


  25. Sandy February 26, 2016 at 10:03 AM

    Zero cash and zero debt for me. I can’t buy the peace of mind zero debt brings with any amount of money. But I can see how many people might opt for the first option, depending what the interest rate is on their $250K debt, they might be able to invest their $250K cash in something that pays the debt over time and they might even have some cash left for them. I simply would not sell my no debt situation that I have right now for any amount of money. Great topic to think about J$, thanks.

  26. Ryan C February 26, 2016 at 10:16 AM

    Option A is sooooo much worse than option B. B is a clean slate and a fresh start. A good ground to start building from. It’s where most of us looked up and wished we could have been there at one point or another.

    And while A seems like it all balances out, once you factor in ANY amount of interest, it’s actually a negative starting point. Why would anyone want to be in a negative financial situation? Would you still take option A if it was $250k in cash and $430k in debt? Because 430k is what you’ll pay in the long run for a 250k loan at 8% for 15 years…

    1. J. Money February 27, 2016 at 9:37 PM

      Well, yeah – B is def. a losing option if you end up keeping all the cash in just cash (which will lose money over time through inflation) but the only people that would pick that would be to invest it and not get 0% or negative :) I put in the “terms” that the debt is 8% so if you feel like you could beat that or match it then you’d have a decent shot at least in theory (ie you don’t blow the cash on something else)

  27. Broke Millennial February 26, 2016 at 10:28 AM

    I knew this came out of the podcast! I was listening to this episode this morning while walking Mosby. This is a tricky one because I abhor debt with ever fiber of my being, but I rationally see the ROI in having cash on hand. I also just feel uncomfortable with having $0 saved because should an emergency happen, that $0 in debt immediately turns into real debt. So, I guess I’ll now with option A.

    1. J. Money February 27, 2016 at 9:40 PM

      I’ve actually used this scenario for yearrrrrs especially when money coaching and trying to figure out how people think about their money and what they’re comfortable with. Tells you a lot with how they answer, and especially how *fast* they answer!

      Love that you’re still listening to the podcast btw… Glad we haven’t scared you away! :)

  28. Abigail @ipickuppennies February 26, 2016 at 10:31 AM

    I think it’d depend on the kind of debt. If it’s a mortgage, I’ll take the $250k thankyouverymuch. But if it’s regular debt… The stress of debt takes a huge toll on my already mediocre mental health. It makes it harder to function, which makes it harder to keep on top of finances. Since I’m the CFO of the family, that’s a problem.

    On the other hand, two people with four chronic illnesses between them generate a lot of unexpected expenses. Having a back-up would be nice.

    Still, if it’s regular debt, I think I’d opt for B. (Which is weird because I started this comment thinking I’d choose option A.) I have family we could rely on in emergencies until we got ourselves some savings again.

  29. Emily @ JohnJaneDoe February 26, 2016 at 10:58 AM

    I think I’d go with A. Liquidity gives more options for starting a business, dealing with emergencies, etc. But it would depend on the type of debt, interest rate, etc. $250 in unsecured debt would be extremely scary.
    On the other hand, in practice we’ve been liquidating some investments to pay off the mortgage on one of our rentals. But, we still have assets saved above our debt load, so it wasn’t the exact same situation.

  30. BeachMama February 26, 2016 at 10:59 AM

    I would go with zero/zero – nothing beats starting over with a clean slate! We could live in our VW bus, hustle for a while and then go anywhere we want to go! Where do I sign up?

  31. Bert February 26, 2016 at 11:29 AM

    Essentially I have already made this decision. I could go to the bank or credit union today and get a personal loan (unsecured), most likely not at $250k though. Since that’s a choice I have not taken my answer would have to be B. In reality this is not a decision that can be made in a pure A or B scenario. There are many other factors that would impact this decision, mainly what would I do with the cash I borrowed and what’s my capacity to repay it.

  32. Lee S February 26, 2016 at 11:31 AM

    I would go 0 money 0 debt. Having already paid from $100,000 down to $52,000, (We hit below $50,000 at the end of this month, I can’t wait!). Bright side is credit cards are at zero. I don’t want to go back in debt again. My wife talks about buying a house and I cringe. I want to be free and clear. We’ve been following Dave Ramsey’s baby steps.

    I would take the zero, start our savings account again and earn my 6-8 month savings goal. Be frugal with my spending and eat bologna sandwiches if I have to but I will not go back to the crossroads and swap with the devil again.

    After the savings is done I would save for a $3000 Vanguard account and start throwing money into it and switch it over to the $10,000 when it gets there. Also at this time start the saving for a house fund.

    I have always enjoyed the me vs the world aspect and getting in debt makes me feel like I’m losing the battle. So, to be able to start the battle over again with what I know now vs what I know then, I’d totally do 0 and 0.

    My family looks on debt as a bad thing too. If I had the $250k in money and in debt all they would see is the debt. So, when inheritances happen which unfortunately looks to be sooner than later, which really, really sucks. They might fight me or give me a harder time if I was $250k in debt but wouldn’t if I was free and clear or working on getting free and clear like I am now and making big progress. The lack of any debt automatically makes me appear more responsible and the $250k debt would make me appear to be a child playing in a man’s world and that I don’t know what to do with money.

    So give me no debt and I’ll happily eat bologna.

    1. J. Money February 27, 2016 at 9:44 PM

      HAH! Love it…

      And I hear ya on the house thing… been a month free from mortgage since selling our house of 8+ years and have been feeling lighter than a feather! No debt, no maintenance, and now no worries :) I’ll send some positive vibes over your way!

  33. Steve @ Think Save Retire February 26, 2016 at 11:35 AM

    I’d take the deal with $250Gs. I’d then use the $250k to pay off the $250k in debt and claim that I’m a financial badass by paying off $250k so quickly. :)

  34. Sarah February 26, 2016 at 11:52 AM

    A year ago, I would have said $0 and $0. I’ve always been one for radical simplicity.

    But now, I have a better understanding of why having cash available for emergencies or just opportunities is so valuable.

    it’s so much easier to be wealthy when you have cash on hand. Even if you have debt. Cash gives you flexibility and freedom like nobody’s business. With cash, you can make decisions that will lead to wealth over time. Like taking care of a roof problem right away, rather than letting it fester and become more expensive. Simply having the money available to say yes is better than having the peace of mind of having zero bills.

    When you are living paycheck to paycheck, there’s something inside you that can change. The feeling of deprivation sometimes makes you spend in ways that you wouldn’t if you have cash available for anything you want. It’s kind of like a diet mentality and it can get you into bad spending patterns.

    1. J. Money February 27, 2016 at 9:47 PM

      Yup! Cash = freedom, baby. Though I wouldn’t want to keep all $250k of it in cash in this situation. Just a chunk of it so I don’t get killed on the 8% debt rates I just signed up for – hah.

  35. Tawcan February 26, 2016 at 12:57 PM

    I’d go with A for sure. Having $250k in cash means having ability to invest that money right away and have it working hard for you. $250k in debt sucks but you can save and get rid of the debt.

    Having $0 cash and $0 debt is a great start but you wouldn’t have any money you can leverage on (by leverage I don’t mean borrowing).

  36. Danny February 26, 2016 at 1:10 PM

    It’s funny you bring this up as I’m in a very similar situation as we speak. The cash/investments vs. debt isn’t as high in my situation as in the example you present above, but it’s not too far off either.

    I’m at option A right now, but strive for option B. The reason for me is more of a psychological decision. Like MMM, I know I would sleep better at night knowing I don’t owe anyone anything. Truly building wealth quickly without any debt is a dream of mine that is going to become reality sooner than I know (or hope rather) :)

  37. Chris @ Flipping A Dollar February 26, 2016 at 1:33 PM

    You make a good point. Option b is less flexible so if I bought a house and then had 0 and 0 that’s a different story than having no asset and 0/0!

  38. Pengepugeren February 26, 2016 at 2:05 PM

    I’d take the 0/0. Partly because I hate debt, but mainly because the loan would increase with interests right away before I could find any investment that might make me a similar income.

    Though, if I could use the money on an index investment that made a surefire return equal to the interest payment, I might do it, simply because tax deductions on interest payments are 33% while stock income tax is 27% here ;-)

    1. J. Money February 27, 2016 at 9:48 PM

      Look at you getting sexy with the maths!

  39. Jason B February 26, 2016 at 4:00 PM

    I’m going with option B. I would enjoy not having any debt. I also know that I will be able to generate some type of money relatively soon. I wouldn’t be at 0 for long.

  40. Kelly February 26, 2016 at 4:06 PM

    My immediate reaction was “no debt!” and then I scolled through the comments shocked to find myself in the minority. I though about everyone else’s rationale and I’m sticking with my choice: no debt, no cash, and my reasoning is that I’m assuming I have some income. Sure, I’ll hold my breath for a bit until I’ve got some cushion in savings – be extra cautious, be extra frugal, save extra aggressively – but $1000 in savings is enough to manage most unexpected expenses, and can be saved up rather quickly. This would be admittedly be a different story if the debt was a mortgage, but I’m assuming it’s not because you said the debt doesn’t come with an asset (i.e. a house).

    Bottom line: I don’t like debt! Income helps Option B tremendously! And a net worth of $0 makes me sad – I don’t want that in any scenario!

  41. Eric February 26, 2016 at 4:49 PM

    I have to go with option B. Having debt is the worst. I could build up my net worth to $250k in a short amount of time without any debt.

  42. Kat Skull February 26, 2016 at 5:10 PM

    I definitely would rather be zero for zero – I’m negative 65 grand in student loans and I have zero cash. At this point, I would rather be an even zero to begin to move forward, almost like a fresh slate!

    1. J. Money February 27, 2016 at 9:50 PM

      I love that you’re tracking your progress on your blog though – it’s empowering to see, not only for yourself but your readers! :)

  43. Tonya February 26, 2016 at 6:52 PM

    This is an easy one for me. I would definitely choose $0 cash and $0 debt. If I had no debt, I would be able to save a lot fast.

  44. Avia February 26, 2016 at 6:53 PM

    I hate debt and don’t have any; I use credit cards for the returns and pay them off monthly. However, the existence of bankruptcy means you do not have to pay, and we must have money to function in this world where money makes it turn. So I’ll take the debt and the money.

  45. Linda February 26, 2016 at 8:27 PM

    Being $250,000 in debt scares the crap outta me. My heart rate actually increases when I think about being that much in debt.
    I have had debt in my life and one of my happiest days was paying off the last of it. I would take option B any day.
    Wow, I never realized how happy I am being debt free until I had to think about the options in that question. :D

    1. J. Money February 27, 2016 at 9:51 PM

      I do what I can to help :)

  46. TheMoneyMine February 26, 2016 at 8:54 PM

    I would totally go with Option A, if only to be able to eat something tonight :)
    Since we don’t know what these assets and this debt is, would the debt be payable over 30 years, the 250k$ of cash can help set up a business and return multiple time the debt over its term.
    Having debt might be bad because it’s a burden, but having no cash is worse, it’s like having no oxygen!

  47. Revanche February 27, 2016 at 1:50 AM

    A all the way, my friend!! I started out with the worst of both worlds: $xxx,xxx debt and no money. I worked my butt off and paid it off but starting with debt AND assets to work with is a way better deal. We have more choices when we have some kind of assets to get a start on the debt repayment plan.

  48. Frugal RN February 27, 2016 at 2:11 AM

    Without a doubt, I’d take option B. We are on track to be debt free in roughly 18-24 months and will tip the scales to a positive net worth in the next 2-4 months; therefore, taking on another $250k in debt, regardless of the cash, doesn’t appeal to me at all. Starting at zero, I’d immediately begin stacking away between $2-4k each month in investments so our net worth would begin to multiply exponentially very rapidly. If I took option A, I’d just use to the money to immediately pay off the debt, leaving us right where option B puts us anyway.

    1. J. Money February 27, 2016 at 9:54 PM

      Oooh having a surplus of $2k-$4k each month is incredible no matter how you cut it – congrats! So many options with that!!

      1. Frugal RN February 28, 2016 at 3:30 AM

        We’re really looking forward to that day of debt freedom when we can watch those G-bars start stackin’ up…lol. Thanks a bunch for your reply! Your site is incredibly inspirational; keep up the awesome work.

  49. James Pollard February 27, 2016 at 4:41 AM

    I would much rather have the 250/250. I could just invest the money into an asset class that pays more than 8%, such as real estate. I could collect rents, build sweat equity and repay off any and all debt. Of course, I’m assuming I would get approved for a loan with such a huge amount of debt.

  50. Lady FruFru February 27, 2016 at 9:55 AM

    Tough question. Great question.

    I would go with A with the thinking that I could make money from the $250K cash via smart investing, and pay down the debt. (Yeah, I’m an optimist and type A…literally, I think).

    I walk by too many homeless folks in my city to even consider the zero/zero option. Ironicallt, I’m sure that many seemingly affluent folks who drive Audis and wear Givenchy could be in the same financial straits as the homeless people.

    1. J. Money February 27, 2016 at 9:55 PM


  51. Jayson @ Monster Piggy Bank February 27, 2016 at 8:22 PM

    I choose option A because I know that I could use the money to get some side hustles to grow the money and somehow pay in part the debt. Or, one option is to invest the money. There are ways to alleviate the interest like consolidate or send a letter to company to lessen the interest rate.

  52. Uncut247 February 28, 2016 at 3:24 PM

    i would rather have $250,000 in cash and also $250,000 in debt. with 250,000 in cash i would invest in a short-term investments. then pay off all debts

  53. NDQ February 28, 2016 at 7:01 PM

    I’ll take the cash and debt. Easy choice.


  54. Amy @ DebtGal March 1, 2016 at 2:28 PM

    From a security perspective, of course I’d rather have the cash, but I’m working to pay off a lot of debt, and the opportunity to have it down to zero is just too tempting. (And I’d start hustling BIG TIME to build up the savings ASAP!)

  55. Giovina March 1, 2016 at 3:03 PM

    I would rather be at 0 and 0. Less than 2 years ago I had 33,000 in debt and 15,000 in the bank, and I decided to use most of my savings to pay down the debt so I would be debt free sooner and pay less interest. Now my debt is totally gone and I have a net worth of 5,000 which feels way better. That crossover point of net worth 0 didn’t mean as much to me as the day I finally saw my debt disappear. Now it’s only up from here!

    1. J. Money March 2, 2016 at 10:22 AM

      Congrats!!! You’re on a roll now!

  56. Brad B. March 1, 2016 at 3:43 PM

    I would much rather have 0 debt. The freedom and peace of mind that comes along with being debt free is just too powerful to ignore.

  57. Liz March 1, 2016 at 7:20 PM

    0/0 all the way. I have the 250k in debt and some savings. I’d rather the clean slate, you can always make more money and you don’t always have to spend money to make money. Any debt you have always seems to stick around longer than anyone would like. I can’t wait to get rid of mine, give me the 0/0 any day. It’s a sad realization when the homeless man on the street begging for change has a higher net worth than me, all for a fancy piece of paper that is framed and lurking around in the back of my closet. I would also say that given my severe dislike of debt, I think my answer would remain the same even if it were a mortgage rather than my lovely student loans.

    1. J. Money March 2, 2016 at 10:25 AM

      I think that degree will pay off over time, just takes forever to do so :(

  58. TJ March 2, 2016 at 12:21 AM

    From a practical standpoint, there was a time in my life where we did have $180k in debt and assets, and a net worth of about $0. We had $100k in a tax deferred retirement account, $50k in cash, and $30k in home equity which we were in the process of selling, because we had moved. We had $160k in student loans at 3.375% and $20k at 5% in car loans. This was in 2011.

    What we decided was to split the difference. Cashing out the retirement account and paying taxes would be stupid, given the fact it was tax deferred. We took a ratio of 60/40 going forward for investing and paying off debt. Payed the car loans off first, then the student debt. I think that was a good decision.

    Hindsight, if we would have invested 100% through the end of 2013, and payed 100% off the debt there after, it would have been optimal. If we were in the same situation in 2015 obviously paying off the debt would have been the right decision. No one has a crystal ball, otherwise they’re like Biff in back to the future.

    1. J. Money March 2, 2016 at 10:29 AM

      Wow – you paid off $180,000 in 5 years? Incredible! And I would have done the same thing/order too… Thx for popping in.

  59. Sarah March 2, 2016 at 6:26 PM

    AGH! I’m struggling with this right now – maybe I’ll blog about it soon and link back to here! As of today, I have about $12k left on my car note.. ..and about $12k in an online savings account, that I consider to be my emergency funds: rainy day fund (“something breaks unexpectedly” kind of bummer) and my sh!tstorm fund (pretty self-explanatory) all in one. I’ve got a decent enough income but only as much job security as anyone has in my industry right now (slim to none) – so I need to keep some savings in case of the worst!
    I’ve been paying extra on the loan, but I’m starting to lose interest in keeping it up.. but it’s just not nearly as gratifying watching debt decrease as it is watching cash INCREASE! I’m hoping that by using some of my savings to pay down that car debt faster, it’ll feel better month-to-month saving to watch my cash grow again than it has watching my debt shrink. It’s purely an emotional thing!

    1. J. Money March 3, 2016 at 7:20 AM

      Wow, that is pretty much the same situation haha…

      My first instinct (of course) was – “KEEP THAT MONEY! Especially if it’s for emergency stuff!” but I also get wanting to rid the debt once and for all too… The only problem is that if you were to lose your job anytime soon – knock on wood – you can’t go back and take out the $$$ you just used to pay off the car, whereas you still always have that option w/ the cash. So it’s def. a tricky one, but ultimately leads to whichever decision best keeps you feeling comfy :) I always forget there are those middle grounds of doing a little of each, haha.. Good luck!

  60. Drew March 11, 2016 at 7:21 AM

    I would most definitely take the money and invest. I have been in a smaller scale situation prior i.e. School. Did the so called investment with some debt in order to build my cash flow opportunity. After that I hustled hard to get that debt taken care of so that in the future if another investment opportunity presents itself I in position to pull the trigger. Not scared of debt, but as Warren B. said we should be scared of what we don’t know. So be hesitant of what you don’t know.

  61. Dr. Beard March 14, 2016 at 4:00 AM

    As someone with as much job security as is possible on this planet (tenured college professor), I would go with $0/$0. Springy debt emergency fund here, now. I know I would choose 0/0, because I’ve been in a pretty similar situation. I had a habit of saving up big ass “emergency” funds to the tune of $15-$20k over a year, but then totally not realizing that we’ve also built a nice $10-$15k CC bill. WTF. It was so much more rewarding watching that stack of cash grow than it was watching our spending and, you know, balancing it. It would appear we were doing well saving, when in reality we were just spending as much as I was earning. It took actually calculating how much interest (idiot tax) this was costing me to learn. If that $250k is financed at 8%, and the I MIGHT get 8% on the investment of the other quarter-mill, then I would take the guaranteed return and sacrifice the flexibility.

    1. J. Money March 15, 2016 at 7:07 AM

      Hah! At least you were saving that $15k-$20k vs spending that also! Could have been doubly worse :)

  62. Mross December 30, 2016 at 1:15 PM

    How refreshing! I have been pondering paying down some recent debt vs savings and I am so glad I stumbled upon this discussion. For me, minimizing my debt brings comfort and a bit of anxiety. Hmmm. I’m going to try baby steps towards plan B. I would have to sell my free and clear home and free and clear investment property to clear the slate and that would bother me more than carrying debt. For example 373k net worth minus 78k is heading in the right direction, but I feel better debt free.

  63. Tessa April 13, 2018 at 7:35 PM

    B for me cz any monies I earned after that would be mine.

  64. ClaireElaine April 15, 2018 at 3:16 AM

    So I haven’t seen anyone say this, but I admit I didn’t read them all extremely carefully. But I would take the $250k both ways. Invest, and pay off in monthly installments for about five years, and then wipe out the debt completely. At that point, I should have a steady income, because it’s not like I’ve been able to live off the interest, since all the interest has been going toward not increasing the debt. BUT, now I ALSO have FIVE YEARS of consistent payments on my credit report. So with steady income and great payment history, if I **had** to take on credit for anything, I could do so at MUCH better interest rates than 8%. So I take all the money I’ve saved from my steady income, invest that at the 8%, and slowly pay off my new loan which is like 4.25% MAX, and now I’m making money. :-)

    1. J. Money April 16, 2018 at 9:34 AM

      Haha… I like it :) And interesting point on credit too, I don’t recall many people answering with that one in mind!