Pay off Credit Card Debt Or make home improvements

8 Replies

Hi all, I’m planning to get into real estate investing and I want to refinance my home as soon as possible, but I’m not sure where to start. My wife and I bought our home for $250k and according to Zillow, it’s now worth $411k. Currently, my credit score is 635 and my home is in okay shape. I have roughly about $15k of credit card debt. So my question is, before I begin the refinancing process, should I pay off my debt or make home improvements so that I get the highest value for my home?

@Christopher Balian pay off your credit card debt. credit card rates are super high interest and will eat into your overall financial picture. By paying off your credit cards, you can then get a high PLOC ($200k+) plus a HELOC. That is a nice start to your REI

Plus, home improvements are rarely positive cash flow. Some of the best home improvements cash flow at 80%; those are the best. Home improvements make sense if your neighbors have significantly higher quality features in their homes. For example, my parents live in Florida and were the last ones to put hurricane proof windows into their house. Down there, making sure the roof is not blown off during a hurricane may decide whether a person will purchase your home or another down the street.

Thanks @Adam Horowitz ! I appreciate your response! Also, could you give me an example on how I would use the PLOC and HELOC for REI? My understanding of the two is that they’re both risky , especially in my market (SACRAMENTO, CA). Taking either one out to put towards a rental property that cost $200k and having to pay off the loan within the period of 10 years doesn’t seem something that would make sense for me to do. Thanks in advance!

Depends on the terms. I recently inquired at my credit union and their HELOCs have a 20 year term. You need to run your own numbers and see what might work. If you refi, you might pay a lot more in interest than you're paying now, which might also make a Heloc more desirable. I'd start inquiring with banks and a mortgage broker to see terms you're looking at. You also can look at using a smaller amount for a down payment and then get traditional financing on the remainder.

I'd focus on paying down CC, first. Unless your house is a real fixer any upgrades you add probably won't impact the amount you can pull out too significantly considering how much equity you already seem to have.

The answer is always to pay off credit card debt first, no matter what the question is...