Reading today’s advice in the paper I was surprised to see Dave Ramsey advice a person receiving a farm income of $250,000 to pay off his farm land loan ($200,000) ASAP. This surprised me as my parents like to make sure that farm loans are the last thing they would pay off.
Farms have a lot of rotating debt in general – for operating capitol, but in this case it was a land loan. Farm rotating debt is paid off and renewed every year, land loans are carried for a set amount of time with set time they must be paid off by and a low interest rate. The interest has to be paid every year and is deductible. Farmers, at least in my experience, are always looking for deductions. The loan interest rates are frequently very low, and the savings between the tax deduction and the money made by saving the money and investing can end up making it not worth it to pay off the loan until necessary.
It’s always a case of balancing whether you will make more money than you will spend? Owing money isn’t ideal, but sometimes you make more by saving the money up until you have to pay it off….
Source: kouponingwith a k