How to begin investing with a large amount of debt

27 Replies

I have been listening to the podcasts, reading, studying and using most of my free time to learn how to invest. I have learned much from other investor stories but I have yet to come across a success story of a person who started off in a situation such as mine. I am 28 and employed full time as a drasftsman. Although this is a career that pays well, I do not make very good money because I am still learning (apprentice). I also work 3 nights a week serving tables at a restaurant, it is not realistic for me to pick up more shifts as I still need time to take care of life demands. Here is where I seem to be different.... I have a ton of debt, a lot. All of my debt is unsecured and none of it is income producing. I have student loans, a car loan that I am upside down on, and credit cards. With normal expenses added to my debt payments I almost have no extra income. Working a second job is very helpful but the money I am making is not moving the needle. My credit score is around 650 but because of my debt/income ratio no traditional financing will even consider me. Is there anyone who was in a similar situation as mine and found your way through it?

P.S. My car is upside down and it would make the most sense for me to shed the car, buy a junker, and get a loan for the difference. However, the junk car plus the difference on what I owe will put me right back at the same amount of total debt. I have considered refinancing just to lower my monthly bills which are out of control. Also, I have reduced my spending to that of a broke college student. I imagine many suggestions will come in this form so I thought it best to cover right away. 

@Account Closed Depending on how much is "alot of debt" how much life is left to the car loan ? if you have high balances on your credit cards with high interest and only are making the minimum monthly payment you will never climb out of the whole, especially with the student loans. You need to somehow consolidate everything into a personal loan with a decent interest rate, I would try for a personal loan to consolidate the debt if you cant do it on your own maybe seek out a relative to come on the loan with you. What are your goals in real estate?, with your current condition id say your ways away from buy and hold. In terms of getting rid of the car loan, as long as your current car has a warranty still on it, the last thing i would do is go buy a junker that can cost you thousands in repairs.

@Account Closed ,

Contact your credit card company and try to get the amount lowered or your interest rate lowered.. threaten to leave, and make sure you talk to the managers... if they don't work with you, find a higher up manager.     They make the most money if you stay with them, so they'll have an incentive to work with you! 

Good luck!   In the meantime.... find a mentor, and offer to help them with stuff, a mentor can be worth their weight in gold, and real estate is all about connections, so while it may not buy you a house, investing in a friendship with a good mentor will help you a lot down the road!

Thank you for your response @Michael Gessner. A lot of debt is 65k with a yearly income of 28k not including the cash I've been making serving tables. I am using that money to pay down credit cards but its coming very slowly. I would love to consolidate my debt, I have tried this more than once with no results. I cant seem to find traditional financing. My car is a problem, but not for long. I have 2 years left on the loan and at the end of 2018 I should be able to break even on my loan with its sale. I understand that minimum payments wont get me anywhere but I don't have any room to pay higher amounts at this point in time. As far as my real estate goals, I want to hold a portfolio of buy and holds (long term) but I want to flip for now. One thing I did not mention is I am currently working a flip with my father. However, we do not agree at all on the right way. He wants to do all repairs himself and its OK if it takes multiple years. His first flip was 2 1/2 years and this one is almost at 1 1/2 so I will not continue to work with him on these deals unless he opens his mind to other options. Unfortunately he has the money and unless I can find my own financing I don't have many options. I am still young, I will make much better money with years to come but since the day I've graduated college (2014) I've been struggling and its making me sick. I work hard, I always have, but I want to make money for myself and not others. My ultimate goal is what most of us want... freedom from the 8-5. What I am looking for here is outside of the box suggestions, examples of how others may have done it, or maybe my situation is so bad all I can do is wait.... I hope that's not the answer. 

What is your housing situation? Can you have (another) roommate to help reduce your monthly housing expenses?

Have you read Dave Ramsey's books such as Total Money Makeover? While I don't fully agree with his investing advice, his advice on how to get out of debt is really good.

Unfortunately, this will not be a quick thing for you to get out of. I hesitate to say it, but if you're willing to truly take a hit on your credit, you could consider bankruptcy since you're still fairly young. But you *can't* get into any debt again!

What about putting your student loans on deference for a couple of years and pay off the car or credit card first depending on which is a smaller debt. Then pay off the next one. After having both cc’s and your car loan paid off then attack the student loans. Not knowing how much each debt is that’s where I’d start.

What is your debt breakdown and how much per month is it costing you? I guarantee you that there are ways to cut more expenses and make more money. Can you transfer CC debt to a 0% card so all of your payments are going to toward principle vice interest? If your folks have money, would they be willing to consolidate some of your higher rate debt  into a loan? How nice is your car? There is an app that will let you AirBnB it? What is your living situation and how much is it costing you? It's tough to offer advice without knowing specifics. We can throw ideas out there, but they may not apply to your situation.

About 8 years ago I was around 150k in debt. The market had crashed, and with it, my business as a realtor. I was feeling stressed, sorry for myself, and everyday it seemed that I was sinking more and more. After almost a year of this, I started reading up on wholesaling and how to flip real estate with no money of my own. One day something inside me clicked and I started taking action every single day. I looked for deals by cold calling, door knocking, bandit signs, direct mail, you name it. Some things worked for me, others didn't; but everyday I was searching for a property to put under contract. Within a couple of months I had 3 deals, I was able to bring a portion of my debt down, and more importantly I was able to breathe again.

I believe you can rapidly change your circumstances by implementing massive action in this business. There is hope just don't give up.

Replace worry with work and fear with faith.

@Account Closed Your father is flipping a house, if im reading this correctly,,,,, the first flip took him 2 1/2 years to complete? and this one is taking him 1 1/2 year to complete, no disrespect either he has way to much cash sitting around and is using this to keep him occupied or he has a sick wish to become bankrupt. With that being said if this is the case you need to educate him, this is a way out of debt and to build enough cash savings fairly quickly to be able to buy and hold, in your case with the circumstances you are currently in this may be the only option for you at this moment, IF and i stress that with the largest font possible, you can get him to understand the purpose to flip real estate is to move them quickly. Lets go with the other scenario, if he has that much cash where he can just float by on a flip to keep him occupied, I would convince him to fund your first deal so you can move to reach your goals in life. Have you ever put the numbers on a spread sheet a broken down to him the money he is actually loosing by his method ?

@Account Closed . Have a clear plan. Work on it daily. Persevere and don't give up.

Good luck.

@Michael Gessner you hit the nail on the head your last reply  post. @Kendall Claxton, if i was in those shoes i would do everything in my power to make dad understand the losses he's incurring by hobby flipping houses. As several posters said: get the critical info for the flip hes working on right now( get loan duration,investment,property value at time of sale vs. another year down the road....., crunch the numbers and show him the decline of the profits month by month after he missed the "sweet spot") get the info into a presentation and strap dad to the couch and force him to listen. HE IS THROWING MONEY OUT THE WINDOW!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! flipping houses is ALL  about flipping numbers of properties in short periods of time to maximize profits. He could better use his time finding the next deal or 3 or 4 deals, while contractors do the hard work.

 Maybe Talk him into a bet: dad i'll bet you (if you fund a property for me) i can turn a higher profit than you can (hopefully you are intimately familiar with the numbers involved in flipping and projecting profits, if not READ the book on flipping houses by j.scott and do reading on the process here in the forums and blogs.....)something, this may be your one and only shot at breaking into the business anytime soon. Make him read the book after you're done with it! 

Best of luck !!!!! keep us posted and if you need help, post/reach out/ we're here to help the best we can.

Thanks everyone for the tips. I’ve tried to transfer to 0 interest cards and almost all other suggestions I’d get from typical personal finance gurus. I do read/listen to Dave Ramsey and I also don’t agree with everything but I have reduced spending to absolute necessities and I’ve got my 1k emergency fund. As far as my dad goes, I have shown him numbers, but I could do better. He is an appraiser and is handy. He’s told me he just hates to pay for things he can do himself. I’ve tried to show him how much of a waste holding is but he looks at these flips like savings accounts. Believe me, I know he is absolutely wrong and I have been trying to show him the light. I forced him to listen to a BP podcast while we were in the car once. He is just.... stubborn. I will continue to try to make things work with him. I do have wealthy family members, but not any that are willing to help. I have been reading a lot on wholesaling and I was ready to begin until I started to read about the thin legal line involved. I’m in Oklahoma and from what I’ve read I would need a license to be able to wholesale unless I have the cash to cover it. Maybe I’m wrong? This is an avenue I have been wanting to pursue but I was going to get licensed first after I save a bit more and am able to not have to work a second job. From my studies so far, I’ve learned that some recommend wholesaling to start and others think it’s something that takes too much knowledge. I like to hear that someone was in a situation with even worse numbers than mine and found a way out thru this avenue. Although it might be better to wholesale after you have been in the industry and learned a lot, starting with no money would be my only option.

I would not get involved in your father’s flipping. I would focus on paying off your debts and then build up an emergency fund. Unless you have kids I would recommend allowing your social life to suffer by picking up extra shifts to pay off your debts faster. You are not in a position now to take on the risk of flipping on your own and your dad is not going about it correctly.

Kendall Claxton anyway to make more income at your job as an apprentice? How long will you be an apprentice for? 28k a year is going to be hard to live on and save any extra.

This may not be what you want to hear but you may need a third job, if you can’t increase the income at the other two.

I would not get involved in real estate right now with all this debt. It would just add more debt and if anything went wrong you could lose it all. Pay off the credit cards first and car second. You could defer student loans but that would just allow more interest to accrue.

@Amy Beth I do think you have a very good point. I really shouldn't allow my life to suffer at this age but I have been in this position for so long I cannot take it anymore so I am willing to sacrifice my time, happiness, and anything else necessary to get where I want to go. The flips with my father was something he wanted us to do together. My idea of our partnership was him finding and buying, and I would take care of the renovation, sale, and all accounting. His idea of us working together is the two of us swinging hammers in whatever free time we have. Its kind of tricky, if I can get him to flip properly my life could change very quickly but I don't want to push him or hurt our relationship.  @Caleb Heimsoth I have been a draftsman for 3 years now and there isn't anyway I can rush my raises. I get work very slowly and I spend most of my time waiting for work to come. The folks I work with are not in a hurry to bring me to my full potential as all of them have spent their whole lives with this company. They are very laid back and know that with time I will get there. I am in a huge hurry so that is why I have to seek other income sources. One thing I could always do is get a different job, I do have an economics degree, but I have a huge advantage as a draftsman and I don't want to blow it just because I can't be patient. Even after I am no longer an apprentice I will still have free time. After we finish our drawings that is it, there is no extra work we can do to keep us busy. I also have the ability to come and go as long as I work my 40 hours. This flexibility will be huge when I get the real estate ball rolling. I'm just not ready to give up, I have to make it work. 

Kendall Claxton well what type of percentage raises are you getting? Investing and paying off this debt would be much easier at 50k and above. If you’re getting an average of 3 percent raise per year, it could take decades to reach 50k.

From what you’re saying it sounds like this employer may not have enough work for
You. I’d look around and see if you can get a higher paying job. A lot of my friends who have an Econ degree work in banking or finance. You could also go get a masters but I would only do that if you get get a full ride or not take out anymore debt to do so.

Does your dad pay you for your work on the flips? If so, maybe you quit the server job and double down on Dad time. Everyone keeps saying ditch your dad but how many people get to share a passion or project with their father. You may not agree on process but you also won’t have this chance forever. Maybe more time working together and swinging that hammer will open his mind to your opinion on the rest of the process.

Another option is finding a better serving job. There is always somewhere else that you can make a few more tips per night. Personally, I would be elated to flip houses with my dad even if it was at a loss for some time.

Good luck with whatever you decide.

@Account Closed

There is some great advice in this thread. I personally would not suggest investing until you get your financial affairs in order. The key tips I see repeated by many others are indeed the best advice.

There are only two ways to get out of this hole. Increase income or cut expenses. You are still in training for your career and you work a second job already, so increasing income at this point would be difficult. That means that cutting expenses will be the best way for you to have enough cash left over to pay down that debt. I followed Dave Ramsey's Total Money Makeover and was able to get completely out of debt.

The one thing I will say is that if you ever want to get out of debt it may mean that you have to sacrifice. I sacrificed a lot to get out of debt. I worked long hours (60-70 hours a week), I gave up a lot of things (cable television, expensive cell phones, satellite radio, my gym membership), I didn't go out on the weekends (I worked), and I rarely ate at restaurants. I cut my own hair, I shopped at thrift stores, I sold electronics and things that I did not need. I poured every penny I had into paying off my debts.

It was not fun, but it was worth it and my temporary sacrifice paved the way for my financial future.

@Caleb Heimsoth I am not positive what percentage raise will come next. I've only had one so far and it was from $17-$19. I know this isn't good money but if I stick it out with this company the sky is the limit with my income potential. I could move into management or design and make more than I would know what to do with. I was told recently by one of our engineers that his xmas bonus was more than his Cadillac CTS V. I could work and be paid as an engineer without going back to school which is huge. We do not require a FE or PE license, they are more concerned with your knowledge and ability. Other draftsman I work with have been offered this position but they enjoy where they are. The most important thing for me with this career is that I really like it and its flexible.

@Dustin 

@Dustin Allen we share profits after the flip. I have only completed one so far with him and I chose to reinvest my share into the next project. I will have to do this for a little longer as we don't have enormous funds to start. I have a wonderful relationship with him but he is an appraiser with 20 years real estate experience and I am a draftsman, he has a difficult time taking advice from me because what do I know? 

@Anthony Gayden you are correct there is awesome advice here and I am very grateful for all of your contributions. I am very happy I chose to post my situation here, I feel a lot better. I am currently on this track, cutting everything and picking up any income I can from other places. It is a long and slow road and to be honest I think I am just looking for shortcuts, but maybe there aren't any.

@Account Closed well from a percentage standpoint going from 17 to 19 dollars is a good raise.  

I would be leery of anyone telling you how much their bonus was.  Unless they are willing to show you a paystub they could be exaggerating a lot.

I’m an engineer myself but got the 4 year degree.  I plan on getting a masters in engineering starting this fall.  If you want any advice or knowledge about this route I can talk more about it over PM.  

If you think you can get consistent similar raises like you just mentioned you’d probably be above 50k in a few short years.  

@Account Closed

In this situation, I think you will need to be a little patient.  

As you probably know by now, that automobile purchase was a huge mistake.  And all that wild (past) credit card spending.  

My advice?  Get a deferment and/or reduction on the student loans.  Based on your income and your debt, this should be a quick and painless process.  Then, pay as much as you can to your credit cards.  While doing this, sell your car for as much as you can get and buy a clunker.  Finally, pay as much as you can to your credit card bills while being as patient as you can.

Maybe it takes a year. Maybe it takes two. But it will be worth it. My personal philosophy is you don't want to begin your REI career with so much personal debt and a modest income. One or the other, maybe. But enter with both and you're asking for trouble.

I want to seriously thank everyone for your advice. I truly appreciate it. I did not really want to introduce myself to BP this way but I felt like I have been doing something wrong, or maybe not enough. It seems like I am indeed on the right track and if I can gain some traction with my father then things will speed up a bit. Yes, my car was a mistake. At the time I was actually making great money and I bought it as a graduation present to myself. Things changed and I was left with a mess. My credit card spending was out of control, I am glad I made that mistake young though. My credit score is still good despite all my debt. I have never been late, missed a payment, or actually have any negative marks at all with the exception of my debt/income so I did not want to go the bankruptcy route. I am excited to get through this mess and move on to become an active investor and BP member.

Kendall Claxton just be like the bank and play debt arbitrage. Take on debt as long as it pays for others. Or lower interest rate.

Instead of reinvesting your money from a flip with your father into a reinvestment, put it towards your debt. You can be kind to your dad and tell him you appreciate that he wants to do this with you but right now you need to focus on paying off your debts. Focus all of your energy on the debt and before you know it you will be able to start saving to do your own deals.

And lastly is there any way you can lower your current housing costs so that you can have more money to put towards your debts? Perhaps live with a few roommates when your current lease ends.

 @Amy Beth I live in a single bedroom apt with my girlfriend. We split rent at about $300 each. Luckily I live in Tulsa and rent is not very expensive here. 

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