Debt... what should I do?

25 Replies

Hey guys a little background I'm 20 have credit score of 720-730 with credit for a little over a year. I recently was basically forced to take over my dads car payments for a car. I'm not going to act like he had a gun to my head or that it's an ugly car but it definitely was not my wish or want. My question is I am looking to get into a house through house hacking and I am wondering if it would be better for me to just give my dad the money for the car every month OR get the loan put into my name? I know that the second option will in theory build my credit and also increase my Debt to income ratio. I am young and don't have well established credit so I am not trying to hinder myself anymore since I already have a lot going against me. What option do ya'll suggest I take? I'm wondering if either or both will impact my ability to get a loan or which will be the worst for helping me get an FHA loan? I'm really trying to get started and avoid anything that will set me back, and do things that will push me forward. Thanks for reading and please feel free to comment your opinion I'm open to suggestions and different viewpoints.

As to how much it hinders you depends on how much you make per month and what the car payment is. Is the car payment in your name or your dads?

Let’s say the car payment is 500 a month. Let’s say you earn 4000 a month (before tax) and after you get into a househack your piti is 1200.

So your debt is 1200 plus 500 divided by 4000 which is .425 which is close to the limit of .5

You can either post the exact numbers or you can just take my example and insert your own, the math works the same.

There could be other issues like not having two years work history unless you were or are currently a student. Not sure on that though as Ive never gone through that case

@Michael Guzik Something you may not have considered but might seem insultingly obvious is that the money you're paying for the car could be used towards the down payment on your first house. Again, I am not trying to insult you here but sometimes the obvious things get lost in the details.

Marshall Easlick

    I thought I remembered this thread from a little bit back so I took a quick look:

    https://www.biggerpockets.com/forums/12/topics/514...

    In that post, you said that you had an old junker car and that you *wanted* to take over your dad's car. In this post you say that it wasn't your want to take over the payment. Which is it? 

    As for what you should do, I doubt the answers will change since you asked this question last time (car or house first). If you really want to invest in real estate, you should have left the car to your dad, got an old junker like suggested, and saved the money towards RE. Now that you've taken over a car payment, you probably don't have enough money to buy anything (since you said you make $25k/year). If you do have any spare money, and you still plan on trying to buy something, you should leave the loan in your father's name; as soon as it is in your name you won't qualify for buying a house based on your last post. By the way, if you have taken responsibility for a car payment, even if it's not in your name, it might be fraud to leave it off your mortgage loan application. You have to list all obligations.

    I believe your ship has sailed for buying RE right now. If you don't have any living expenses, i.e. you're living/eating at home, and you only owe $9k on the car, you should get the car paid off pronto and then start bankrolling everything you've got to gather up enough down payment to buy something to house hack. 

    there are many other factors to consider but I think the answer to your question is to just pay your dad for the car and take the loan out of your name. that will free up DTI

    Alex Shaughnessy

      Your next steps should be the following: 1. pay off car or sell and buy used car in cash.

      2. Get a second job or earn more. I don’t remember if you said if you work full time or not but if you don’t work full time I’d go find a second job

      @Caleb Heimsoth The car payment is in my Dads! Thanks for the comment.

      @Marshall Easlick Don't worry I thought of that Marshall and am already saving 1000 a month regardless of the car payment. I'm just now implementing frugality and learning to be smarter with my money since the money I save is going to put me that much closer to my first investment. 

      @JD Martin  After reading all the input from the last discussion I presented it to my Dad and we had a long hard talk about what to do next and what would be best for my family and for my goals. I appreciate the comment but you don't know the situation so I don't expect you to understand the financial situation my family is in. Thanks for the part about it being fraud if left off of the mortgage applications. I will definitely look into that because I had never considered it to be fraud but now looking at it I can see that it could be.

      @Michael Guzik if you have some family complications right now I would do some deep thinking if I were you if doing REI right now is best for you.

      Depending on what strategy you want to do, REI can be another job which could add a lot of stress. Just something to think about

      "I don't expect you to understand the financial situation my family is in." 

      The reality is it makes no difference.  Financial decisions are made based on what is best for the individual. If your decision was based on what is best for someone else it was probably the wrong decision.

      What you should do is save diligently till you have enough to pay off the car loan then sell the car and buy something less expensive. You can then begin to save to invest.

      @Caleb Heimsoth @Thomas S. I understand your points but I still live at home and am part of a family so my actions impact 6 other people. Thank you both for the input I see where you are coming from and appreciate your opinions!

      Originally posted by @Michael Guzik :

      @Caleb Heimsoth The car payment is in my Dads! Thanks for the comment.

      @Marshall Easlick Don't worry I thought of that Marshall and am already saving 1000 a month regardless of the car payment. I'm just now implementing frugality and learning to be smarter with my money since the money I save is going to put me that much closer to my first investment. 

      @Jd Martin After reading all the input from the last discussion I presented it to my Dad and we had a long hard talk about what to do next and what would be best for my family and for my goals. I appreciate the comment but you don't know the situation so I don't expect you to understand the financial situation my family is in. Thanks for the part about it being fraud if left off of the mortgage applications. I will definitely look into that because I had never considered it to be fraud but now looking at it I can see that it could be.

      You're correct in that only you know you/your family's financial situation - maybe taking over the loan is a mercy killing to prevent financial hardship for your parents. When it comes to investing, especially real estate investing, you have to either be "invested" (pun intended) or not. Flipping houses or renting out property is not like mindlessly allocating 5% of your salary to an IRA. You can make a lot of money in this business, but you can lose a boatload as well. I've done both.

      @Michael Guzik ,

      If you were forced to take over the payment, why not look into selling it?     Personally, I wouldn't pick depreciating asset debt over potentially appreciating asset debt, such as a house-- especially one that could make me live for free!    

      Sacrifice is the name of the game in the beginning. 

      Ps.  Not trying to start a old car competition, but 2 yrs ago we got a 87 Nissan for $400, had to put $500 into it, runs amazing and is our primary work truck, if you're trying to do renovations.. that'd be your ideal vehicle IMO!  

      @JD Martin I know trust me I really did think about what you said and you were right! Now my question is in your opinion I have 4000 in savings right now that I was planning to use for a down payment. Do I just use that money for a new car? I know that short term it will suck because I will have 0$ for a down payment and can't buy but at the same time if I keep my Dad's car then I will have a higher debt to income ratio but will have money for the down payment....

      @Linda D. Thank you so much for the comment and advice! I doubt I could beat that lol but I am going to start looking on craigslist for used cars because I seriously would prefer selling the car and buying a used one. 

      Originally posted by @Michael Guzik :

      @Caleb Heimsoth @Thomas S. I understand your points but I still live at home and am part of a family so my actions impact 6 other people. Thank you both for the input I see where you are coming from and appreciate your opinions!

      Don't worry man. You should hold your head high knowing that you are doing what's best for you family. At the end of the day it wouldn't matter if you owned all the houses in the world if you didn't have family. I'm going to send you a request. Feel free to reach out to me anytime. I come from a big family that is extremely close. I'm the oldest of 5 kids and know what its like to make sacrifices for the rest of the family when you are the first one old enough to get a true job and contribute. I respect your values.

      @Michael Guzik  you don’t want to spend your savings on another car.  How much is the car worth?  How much is left on the loan?  Basically if possible you should sell the car to pay off the loan.  Then take whatever is left over  after the loan and buy a cheap used car or truck.

      Also I would suggest reading and learning about personal finance before you do real estate investing. If I say the words Roth, IRA, 401k, etc you should be able to tell me what those are, contribution limits, pre or post tax etc

      @Derek E. Thanks so much for that man I really do appreciate it and am glad there are other people out there who understand.

      @Michael Guzik which part are you referring to?  You don’t want to buy another car because cars are depreciating assets.  I believe I read less than 1/3 of luxury car owners are millionaires.  That’s not a coincidence, it’s because cars lose value over time.  

      If you’re referring to the personal finance part, I said that because I’m of the belief you should learn basic budgeting and investing (passively) in the stock market.  Contrary to what most people will tell you, the stock market is much less risky then real estate assuming you’re diversified.  I did a year of that and then a year of learning about real estate before I actually bought anything.  Now I do both real estate and the stock market 

      @Caleb Heimsoth I apologize I was referring to the second part. That's interesting though I've never heard someone say that before. I'm too young to have either of those things though do you suggest I look into getting one or into learning more about them?

      @Michael Guzik you can open a Roth IRA today. I'll let you look into all the differences but you're not to young to open at least that today.

      Over the long term the stock market will average about 7 percent.  Real estate averages 3.  Now that’s not the whole picture but I’m just saying in a perfect world you should do both.  

      @Caleb Heimsoth Multiple streams of income is the way to go! I appreciate the insight and will dot that tomorrow during my hour for learning thank you!

      Although he's much more conservative than I am (I believe in using leverage for appreciating assets), I think Dave Ramsey's program might help you.  If nothing else, listen to his radio show for a while.  If, as another poster mentioned, you are making $25k per year, you need to invest in a "bigger shovel" to dig your way out of debt and get ahead.

      You could go to the library and read the book called "The Truth About Money" by Ric Edelman.

      Many interesting comments! Hope you can manage your dept soon

      Free eBook from BiggerPockets!

      Ultimate Beginner's Guide Book Cover

      Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

      • Actionable advice for getting started,
      • Discover the 10 Most Lucrative Real Estate Niches,
      • Learn how to get started with or without money,
      • Explore Real-Life Strategies for Building Wealth,
      • And a LOT more.

      Lock We hate spam just as much as you

      Join the Largest Real Estate Investing Community

      Basic membership is free, forever.