Start investing vs clearing debt first

13 Replies

I have been listening to a lot of Dave Ramsey podcasts and he insist on getting out of debt before doing most things. I have about $18k in car payment left and $30k on the bank saved. I can easily pay off my car but then having $12k left is what is turning me away from paying it off at once. I want to buy my first home and I know I can go for an fha loan with a 203k loan so I won't need the whole $30k but I like the cushion I have in my savings account in case there are se bumps in the road. Wanted to hear others opinions on my situation before I make any decisions. Thank you in advance

good topic. I have two units now. And found Dave Ramsey. I ance been really conflicted between continuing the BRRRR method for more units or debt snow ball to pay off current loans then save for next purchase. This question had me a bit paralyzed at the moment. Not knowing which way I want to go. But the market is rising (almost to fast). So I have taken this time to try and figure out my next move and to see what the market is doing. Certainly safer to go with Ramsey strategy. But the allure of more units is always a strong pull

What is the interest rate and remaining interest to be paid on the car? If you are at 0% or close, and have a high income to expense ratio, and are not upside down on the car, I don't see a problem. You should *never* exchange liquid cash for non-liquid assets or objects without a significant cushion set aside to pay actual expenses, and that goes for anything - living expenses, investment expenses, etc. If that $30k represents all your liquid assets, I wouldn't touch it either way. 

Originally posted by @Dustan Marshall :

good topic. I have two units now. And found Dave Ramsey. I ance been really conflicted between continuing the BRRRR method for more units or debt snow ball to pay off current loans then save for next purchase. This question had me a bit paralyzed at the moment. Not knowing which way I want to go. But the market is rising (almost to fast). So I have taken this time to try and figure out my next move and to see what the market is doing. Certainly safer to go with Ramsey strategy. But the allure of more units is always a strong pull

 Keep in mind that you are mortal and have a limited number of years to employ that strategy ;)

Invest now, pay debts later. There's is no point in paying off all your debts and being left with close to nothing. Then the question of investing does not exist anymore. The obvious choice here would be to continue your strategy and don't look back.

If the interest is low on car loan I would go for the investment    Strategy , but save enought money as a cushion. That way u get the ball rolling  great topic that's why I love Bp

Keep some or all of the 30K as cushion.  Sell the car and buy a cheaper one. Take the net from the car sale and buy investment real estate.

I was big on paying off debt before buying a house, and have read tons of Dave Ramsey and many other personal finance books, blogs, etc. But even with all of that I eventually determined it didn't make sense not to buy a house when I did vs continue renting with rents increasing and interest rates as low as they were. I ended up buying my first house FHA before I knew anything about bigger pockets or REI. I bought at the bottom of the market just about interest rate wise and got in at 3.25, and before they change rules in getting rid of PMI. I moved for a job and decided to rent instead of sell. And have since bought a second house FHA. My first house cash flows about $3500 /yr right now, just enough to keep saving for something down the road.

All of this to say, I still have student loans to pay off, but have decided to focus on my real estate for now as in terms past 3 years my net worth has only gone up with each home purchase as I'm gaining equity. My current house payment saved me $300/mo in rent for the same size house, and I'm able to use that extra money to renovate and improve the value to either refinance and rent, or sell and make some cash for the next deal.

Originally posted by @Joe Capobianco :
I have been listening to a lot of Dave Ramsey podcasts and he insist on getting out of debt before doing most things. I have about $18k in car payment left and $30k on the bank saved. I can easily pay off my car but then having $12k left is what is turning me away from paying it off at once. I want to buy my first home and I know I can go for an fha loan with a 203k loan so I won't need the whole $30k but I like the cushion I have in my savings account in case there are se bumps in the road. Wanted to hear others opinions on my situation before I make any decisions.

Thank you in advance

 I may stand alone, but I will speak to you from personal experience. PAY YOUR DEBT FIRST!!!!!

I hate credit because in the majority of cases, it causes people to spend far more money than they would had they been paying cash. So instead of purchasing that $15,000 Dodge Dart, you are buying the $30,000 Dodge Charger. After all, it is 0% down.

I haven't had a car payment in 6 years, and the amount of money I was able to save because of that took me to the next level in terms of saving and investing. A car is a depreciating asset. It does not cash flow, and it will not increase in value, even if you spend a fortune making it nice.

If you are worried about not having enough to buy your first home after you pay your debts, then you aren't ready. If you have read Dave Ramsey's book, then you know there are a lot of illogical reasons why people like to stay in debt.

I personally would just keep making your payment on the car and get started on Real Estate. My car note is 344.00 at under 2% interest. I have 12k left on a car worth 19k. I can't replace it with something as reliable for less money than the 12k I owe. 

Go the "cashflow" way and get a rental to pay it off for you.

Originally posted by @Anthony Gayden :

 I may stand alone, but I will speak to you from personal experience. PAY YOUR DEBT FIRST!!!!!

I hate credit because in the majority of cases, it causes people to spend far more money than they would had they been paying cash. So instead of purchasing that $15,000 Dodge Dart, you are buying the $30,000 Dodge Charger. After all, it is 0% down.

I haven't had a car payment in 6 years, and the amount of money I was able to save because of that took me to the next level in terms of saving and investing. A car is a depreciating asset. It does not cash flow, and it will not increase in value, even if you spend a fortune making it nice.

I agree! If you've got $30k in the bank and an $18k loan (5% interest?)  then you are lending your money to the bank at 0.025% and borrowing it back at 5%.

Plus, the 5% (or more) auto loan is a guaranteed return.  If you invest it in real estate, or the stock market, it might go up or it might go down.  The money you save by paying down the debt is a guaranteed rate of return. 

And, yes, debt does encourage people to overbuy.  If you had to pay cash, and real estate was really top of mind, you probably wouldn't have gotten that car.  Might I suggest a beater van or pickup truck?  Much more useful for picking up drywall or a refridgerator at Home Depot.

@Joe Capobianco  

Invest.  Then use the cash flow from your investment to pay off your car debt.

This is also my current plan.

In the end the question is how bad do you want to grow your business?

Personally I went from a 14k car down to a 6k car, now a year later I am getting it ready to sell to move down to a 1.5k car. Do you have a newer lemon or an old lemon? - Having a newer car because its more reliable is a bit of a fallacy, new cars can have as much maintenance, except its significantly more expensive to fix each trip.  You may or may not be doing repairs more often with an older car, but its still cheaper. 

My parents have a 98 intrigue with 230k miles on it. We had to replace the tranny once but otherwise its just been the standard maintenance schedule. 

Also owning a beater is much less stressful - I don't worry about how much this and that costs or get angry when something breaks. No stress when the ahole in the parking lot dings my car or I back into something. If you get to the point where that kind of stuff doesn't bother you with a nice new car, then you can truly afford it, otherwise you cant :).

My plan is to get to 9-10 properties and then reassess. In the end I want that maserati or lambo but a nice jaguar in 5 years instead of 15k car now sounds like a heck of a deal to me. 

if everybody listened to Dave Ramsey, 95% of the businesses would not be started and therefore a lot us wouldn't have jobs.

I agree with the whole don't spend too much on stuff but in terms of investing, you pretty much have to go in debt.

if you know what you're doing, REI can really give you awesome returns with loans. Plus, interest rates are so low now.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here