Pay Off Debt Or Invest?

Question

Hey BP Here is a current situation I need some advice on.

Currently have 45k in liquid cash, and 60k on a HELOC. On the debt side I have a 9k car loan, and 7.5k on a zero interest credit card. Should I pay off the debt before buying a property? Or buy another rental and continue to chip away at the debt monthly?

Thanks

Shane

Shane Elias-Calles · Answer

Thanks Steve, that is a correct assumption, and it is the direction I am pursuing now. will be using the cash to pay down the heloc then lock and load when the next good deal comes along! I appreciate the insight

Steve Vaughan · Answer

My guess is your liquid cash is earning less than half of what your heloc is costing.  Cash earning 4%, heloc costing 8% for example.

Unless you fear your bank will freeze your credit line (the bank is in trouble), I'd pay down the heloc and use it as 'liquid cash'.

We've maintained a heloc while having liquid cash in savings because our heloc is only 4.3% and tax deductible.   If your numbers aren't similar, optimize by paying down the heloc. You'll still have access to the funds.

Shane Elias-Calles · Answer

@Joe Homs

@Kerry Baird

Thank you both! to share a little bit more, the line of credit is actually 93k and i have 33k out on it and 60k that can still be used. The current interest payment on the 33k is being covered by the rents of the investment property it is currently drawn on.

Outside of that are the other two debts of the car and 0 zero-interest credit card... my thought was to use the cash and line of credit to buy and fix up another rental. The interest payments on the LOC and both mortgage payments would be covered and have cash flow left over. with that being said i could use the liquid cash to pay back the line for now, and use that money that was going to interest payments to pay off the debts until i look for another rental at which time could draw the line again for the next down.

Anyway i appreciate both of your feedback on this one!

Thanks

Shane

Kerry Baird · Answer

I like the answer that @Joe Homs gave you.

Given what you have shared, your FICO is likely strong.  I personally am always looking for another deal, and having cash on hand, combined with a good FICO enhances the possibilities.

Joe Homs · Answer

@Shane Elias-Calles I would normally tell you NOT to pay off your debt and use that money to make more, but since you have the ability to get that money back anytime with your HELOC, then pay that off first.

Good Investing...