Credit card debt vs available cash on hand

5 Replies

So I’m in a bit of a dilemma, I have about 25k in credit card debt, more than half of which was used for rich dad poor dad elite education. I recently sold a home and have an extra 20k in the bank should I pay the credit cards off, or use the 20 k to invest into properties? My monthly payment on the 25 k is about $450 a month. But could be whipped out if I pay off the credit cards. If I do that I now have no leverage for deals and down payment abilities. Please tell me what you would do if you were in my shoes? Get rid of the debt , pay half of it? Other half to properties? Please let me know. I would appreciate all insight!

I'd vote to pay off that bad high interest debt which is your credit card debt before anything else. The 450 a month payment is just the interest which doesn't change the 25k so you will keep owing the 25k even after each 450 payment and never get anywhere.

I'd say it's much better so start from zero with no debt, it'll be less stressful and at least you will have the knowledge you learned in those classes. I hope they were worthwhile.

I know it's too late now but going forward have you considered simply using this here FREE BP website and it's podcasts rather than spending thousands on classes?  Just throwing that out there. 

@Oscar Maciel everyone is different about debt so I'll just float it out there, how long would it take for you to save $20k? If it would take you several years to get that money again then that's a long time to wait to invest. Every financial planner....and I mean every single one....will advise that you absolutely need to have 3-6 months saved for an emergency fund. Money that you will not use unless it's an absolute emergency. So if you don't have that....then you don't have $20k but rather more like $15k. Knowing how to budget and protect yourself is very important in real estate. If you can follow Warren Buffets #1 rule in investing, then feel free to invest that $15k. The rule is NEVER lose money.

It depends. How much real estate can you acquire and what kind of returns can you expect from it compared to the interest rate on the credit cards? If you're up to date with your payments so far and your credit score is okay you can potentially consolidate the high interest credit card debt with a fixed rate personal loan. If that's at all possible in your case then I would definitely lean more towards buying an asset. Yeah, the interest increases your debt but if you can buy a good asset now you'll be amortizing that debt much more easily with multiple income streams. You will be locked in at a much lower fixed rate and you'll knock out that debt using cheaper dollars over time as inflation erodes the value of our currency. Paying off the debt now comes with an opportunity cost. (Did they not teach this in rich dad coaching? o.O Kiyosaki totally changed the way I thought about debt.) Of course, if your DTI is keeping financing for your deals out of reach, you may want to opt to pay at least some of the debt off now. Not every seller wants to carry back financing, and while lending standards seem to be relaxing, DTI is still a big reason for people being turned down for mortgages. Whichever way you choose, I highly recommend looking into debt consolidation options so that you can at least curtail the compound interest on your debt. Good luck!

I vote to get rid of that CC debt. If an emergency were to arise it could be available again; and CC debt is the worst kind to be carrying or stretching out. As for investing that 20K? IMO you are better off in getting things under control, accumulating some savings and holding off for now. The last thing I would want for you is unexpected expenses on top of credit card debt. The market is not in your favor right now anyway, and may be better when you are ready.

Maybe try to roll it over into a 0% credit card? Then pay a lot of it off. That would help your credit score. It would also allow you to possibly pull some of that out as cash again, if you really need it. Always make sure that your credit utilization is never more than 30% of your available credit.