Should I Pay Off My Boat Before Cruising?

[n8kraft]

Thanks for all the great ideas.

Captain Randy asked if there are pre-payment penalties. There are none. I'm probably going to make the required payments for the first few months while I'm putting the rest of the money in to projects (rebedding portlights and replacing the black water plumbing and holding tank) then I'll go on with reducing the amount owed.

[virginia boy]

All you mathematicians out there crunching numbers, hah! So what, you lose a few hundred or maybe even a thousand dollars by paying the boat off. Compared to the freedom of being in charge of your own life, a thousand bucks is nothing! It's cheaper than worry and stress. Heck, If I were the OP I would pay 5 thousand just to be out from under the slave system of monthly payments for the next few years. Except to pay for a new liver after years of celebrating my escape from the money lenders, I'll never borrow money again.

....and once you pay it off, don't ever, ever, ever, take out a loan again.

[bobconnie]

Ok I admit Im Old Fasion(really just old) But I hate Owing anything ! I want to be in control of my own life not a bank or insurance company! Pay it off as soon as you can as long as you don't short your family to much ! when it's yours, you control where and when you use your boat ! If you wish to cruise the Caribe in Cane season( as many do!) you could if you wish to stay in the Sea of Cortez on the Hook for a yr or two you can no man or Ins Co. can say no! I like being self insured on my boats and only carry Liabilty Ins. I know this may not be agreeable to others but it's a lifestyle Ive been living for Many years ! just my 2 cents

[belizesailor]

Originally Posted by virginia boy

... Compared to the freedom of being in charge of your own lif...

Absolutely, like modern indentured servitude!

I've never financed a boat, if I can't pay cash for it then I don't need it.

[LostAtSea2011]

I think you should pay off MY boat before you go cruising.

[Cheechako]

People hate paying taxes. My experience is the richer they are the more they hate it! It's easy to make the leap to "wow, I can save money on taxes by paying 90% of my property payment to the bank!"
It used to be a great deal leveraging a few hundred thousand in real estate with a few thousand dollars. Then it would double in value in 3 years and you could put a few hundred thousand in the bank. Paying the interest made sense then. Unfortunately... not anymore! Never did on boats though....

[dandrews]

Originally Posted by virginia boy

All you mathematicians out there crunching numbers, hah! So what, you lose a few hundred or maybe even a thousand dollars by paying the boat off. Compared to the freedom of being in charge of your own life, a thousand bucks is nothing! It's cheaper than worry and stress. Heck, If I were the OP I would pay 5 thousand just to be out from under the slave system of monthly payments for the next few years. Except to pay for a new liver after years of celebrating my escape from the money lenders, I'll never borrow money again.

....and once you pay it off, don't ever, ever, ever, take out a loan again.

Could not agree more. Few years back, paid off house, car was already paid, paid off the boat and owe nothing except annual property taxes. Never felt so free in my life.

Don

[David_Old_Jersey]

Given that OP "bought" a boat that he doesn't (presently) need with money he doesn't (presently) have - sound financial advice does seem a tad superfluous.........

[GordMay]

Originally Posted by David_Old_Jersey

Given that OP "bought" a boat that he doesn't (presently) need with money he doesn't (presently) have - sound financial advice does seem a tad superfluous.........

Bingo!!!

[msdj69]

Originally Posted by GordMay

Bingo!!!

I don't know. Nothing is as cut and dried as it seems. I learned long ago to not being judgemental about other people's financial decisions. He may have terrific reasons for handling his situation the way he did. I'm not in his shoes.

That being said ... I can't imagine cutting lines for an extended cruise with a boat payment. Wouldn't work for me. When I'm able to payoff a cruising vessel, I'll leave port. And not a minute sooner...

[ArtM]

Originally Posted by belizesailor

The interest is not "taken off" your taxes -- it is an adjustment to your taxable income. So it only reduces your tax liability by a percentage of the interest adjustment applied (how much exactly depends upon your tax situation).

Correct, but even this is a gross exageration of the truth. You and your wife are first giving up around $9,000 (feel free to correct this number if anyone is in the mood) in "free" deductions.

Only the interest after that amount is deductible. If you pay $10,000 in interest, for example, only $1000 is actually deductible in a meaningful way, because the other 9,000 would have been deductible even if you paid NO interest.

Further, this is only meaningful if you are in very high tax brackets. Also, note that this does NOT reduce your SS tax, which is the highest portion of most people's income taxes.

Calculate exactly how much this "tax savings" is worth to you, based on your income, other deductions, and overall taxability. I'll be surprised if it is saving you more than $1000/yr in taxes, and the interest is certainly costing you more than that.

Finally, this is assuming that your deductibility is based on primary residence. If you are deducting this expense as a business expense, based on a boat-based business which earns income, then the figures are quite different. In that case, the interest directly reduces your income tax AND Social Security tax in a substantial way.

Basically, unless you have a sophisticated tax strategy involving a schedule "C" on your tax return, you should consider this tax benefit to be (a) very small, (b) possibly negative (meaning you lose money by taking the deduction) and (c) declining every year until you reach the negative point in (b), after which there is NO tax benefit

[Tony B]

Art

You are a perfect example of why I pay an accountant every year.
I think many people that do their own taxes screw themselves but don't know it.

[Tony B]

You must have gotten on heck of a deal. You owe (with interest) $46,440 so I can assume you did it with no money down. And, how much did it cost to truck the boat over 2700 miles?

I'm just trying to make sense of this whole thing. I dont know if you ever owned a ketch rig before but I sure like mine.

[Tony B]

Originally Posted by n8kraft

.........Are there any benefits to having the boat paid off before I go cruising, or is it better to just put the money in an account and have the bill paid automatically each month?

There are some benefits to paying it off, one being peace of mind knowing you dont owe anyone anything and are financially free. If tradegy strilkes, that is what credit cards are for. On the other hand, if it is a big ticket item, the credit card interest could cost vastly more than the bank if you didn't pay off the note. Depending on your attitude and finances, this is a double edged sword. The bank interest is so low these days that sometimes I wonder if 'renting' $10,000 for a cost of maybe $60/month in interest would be worth it. That in itself can be a feeling of comfort and security. The down side of carrying the note is that you will have put away money for the monthly automatic withdrawals, and you have to pay this anyway no matter what, why pay the interest if you don't have to?
I don't know about others here, but we have always owned older boats and no matter how good the survey and test trial, on a long trip, something expensive always seems to crap out. Forunately, when we get settled and I start my offshore work again, we pay up any borrowed money relatively quickly. Keep in mind also that if tradegy strikes and you do have a high ticket item and do use a credit card, you can usually get your bank to give you a loan to pay off the credit cards at a much lower interest rate.
Another arguement would be that if you have the cash laying around you might just squander some of it just because it's handy,

When ever we get ready for a long trip, like the inland waterway thing we will be doing right after the first of the year, we will be leaving debt free as we always do. That's just us.
I think that as far as a financial arguement goes, the winner will be 'pay it off before you leave'.
The emotional argument will be let's hang on to the money just in case something goes wrong.
Only you can decide what is best for you because I can debate it either way.
Sorry, not much help in the decision making process, just offered some things to think about.

[zeta]

I have only felt freedom when debt free. Many own boats with huge mortgages and dream of the day they will have that albatross removed. I'm in the pay it off and cast off crowd.