Payoff Debt or Move Forward?

Question

I know this is personal for everyone but I'd like to share where I am. My wife and I have good jobs and we do have $80k in debt (not good debt but bad debt). We have leftover around $3,200/ month and we currently have 2 rentals not counting our house havk basement apartment (yes the cash flow is part of the $3,200/month leftover). These rentals were houses we lived in prior to them being rental. I have HELOCS with my residence and one if the rentals totalling $150k. I was thinking of using the HELOCS to get rid of the $80k which is a higher interest and then knocking thise balances out. My question is would you continue to knock out the $80k debt with the $3,200/month and use the HELOC to invest in real estate or would you knock $80k with the $3,200/month and then use the HELOC to invest?

Michael Barido · Answer

@Scott Trench this is really what I was thinking. I don't like debt hanging over my head and would feel more comfortable debt free. But I also have this desire to move forward on the journey

@Theresa Harris the $80k is basically a one off - home improvement.

Thanks to all who replied.

Ashton Karp · Answer

I assume you have savings set aside to weather economic storms, otherwise you wouldn’t drain your credit access to pay off high interest debt. That being said, I think the answer comes down to the differential in interest being paid on your current debt and the HELOC. If the difference is 3% then mathematically your best option would be an investment that pays back more than it saves. If you have 80k in 28% credit card debt then make the move and pay it off with your secured debt.

Theresa Harris · Answer

If the $80K is bad debt and higher interest rates, I'd do the HELOC to pay it off and then use a good chunk of the $3200/month to pay off the HELOC.  Also look at how you got the $80K in debt to ensure that you aren't going to add to it again.  As Ashton said, it depends on how much higher the interest rates are. If you are talking about 5% vs 4.5%, the costs to do the financing may not be worth it, but if it interest rates on the bad debt are double digits, it may be.

Scott Trench · Answer

Personally, I think that life is better when I am in a position of financial strength.

Having $80K in bad debt, and then piling HELOCs on top of that to buy more real estate puts you in a position of financial weakness, should the markets even have a hiccup, or things go unexpectedly.

I'd refinance the $80K into the HELOC, pay off the HELOC, amass a pile of cash, and use that cash to invest in real estate.

Sure this is harder and requires a slog, but I think it's the difference, like I said, between investing from a position of strength, vs of financial weakness.

Payoff Debt or Move Forward?

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