Contractor · Ojai, CA · Member since 2018 · 27 posts · 5 votes
I am currently working and saving money for my first real estate investment. I was curious, if you have say an auto loan or maybe some debt in a credit cards. Is it wise to have all that paid off before investing in real estate? In my case, I owe about 8,000$ on my auto loan at a whopping 2.3% interest for about three years. I'll end up paying about 600$ in interest. I have the money to pay it off. Should I? Thank you. Any information is appreciated.
Hello and welcome to this site Joseph! I would pay off every debt except school debt. All other debt will probably give you negative points when loan qualifying. Use any money involved in paying debt should allow you to save more.
I also have a car loan. 2.55% interest. Bought the vehicle used, so I didn't waste money on a brand new car. I also have a 401k, a roth IRA and a brokerage account. Each of those are earning between 9-12% returns. Now, should I pay off the 2.55% car loan and not contribute to those accounts earning 9-12% returns? In other words, should I lose at least 7-9% returns so I can "feel good" about not having a car loan? That's up to you. However, it isn't the financially smart decision. You need to analyze what the return on investments would bring. They hardly will outpace credit card debt, so credit cards should almost always be paid off first. But car loans and mortgages are often those types of debts that you should keep and get a higher return elsewhere. But that is all up to your piece of mind. Personally, I'll take all the money anybody will borrow me at 2.3% interest. And I'll turn that into 10-15% gains, or much more...