Save or Pay off Debt?

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Save or Pay off Debt?

Zachary Zinn
Member since 2019 · 39 posts · 20 votes

Question for you all to see what makes more sense to do right now.

Debt: I have $15k in credit card debt that has an interest rates of 10-16% depending on the card. Minimum monthly is $350 but I usually put a little extra to about $500 just to work it down. Only other debt is a car payment but that isn't going anywhere for a while

So currently I have $9500 saved towards either buying a home or paying debt. I'm planning to buy a multi family home so it will pay for its self, just have to wait for the right one to pop up. That said I'm also wanting to be debt free (minus car). For the last 5 months I've been saving between $1500-2000. Also have a 730 credit score....depending which one you ask and when lol

So my question is should I keep saving for the multi family, or get rid of all of my credit card debt so that my income needs are lower? Part of it also plays into my job, I'm a home inspector and can set my own schedule so if I had less debt I could cut back on how much I had to work and be able to enjoy life more. 

Thoughts and opinions are always appreciated. 

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Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
7y

@Zachary Zinn how can you have 15K in cc debt and be saving $1500-$2000 per month for five months at the same time?  Instead of going into debt to save, pay off your cc debt.  You are paying an extra 10-16% interest to save X dollars at 0% interest. 

You should pay the debt, figure you how to save $1500-$2000 after you have paid it... then use the money to invest while being debt from on cc.

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  • Scott Anderson
    Rental Property Investor · AZ · Member since 2018 · 212 posts · 183 votes
    7y

    If your cash isn’t enough to buy immediately, pay off debt.

    If it is enough to buy then calculate Cash on cash return for the home and cash on cash return (interest savings) for debt pay down. 

    Whichever is higher go that route. Then work the other one with the increase in $ supply.

    Either way get rid of the cash. 

    0Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y
    Originally posted by @Cameron McCown:

    There are, and truly there's not a way that's wrong- there's just a way that works for you.

    House prices are lower today than they will likely be at an average point in the future, and getting into action is the key to success in this industry.  So you can wait until everything's "right" (it's a myth), perfect, no debt, whatever.

    Or you can get into action.  Put the money down, and use the cash flow from the new property + your current income to pay off the credit cards even more aggressively.  You're essentially buying $200/month (or whatever the net cash flow is), to get yourself out of debt instead of getting out of debt with the cash flow you have.

    Be smart.  Make the investment make sense.  But invest.  Or don't, and wait until everything is just right.  There's no wrong way to do it, just a way that produces more money at the end of life and a way that produces less.

     No there is a way that is wrong. You are giving blatantly bad advice here. 

    There is definitely a wrong way to do it. The way you are mentioned is the way millions of people have no savings and go broke. Are you just a lender or do you own rentals as well? What do you do when your tenant doesn't pay rent and your water heater goes? Do you go into more credit card debt? 


    Telling a new investor who is paying extremely high interest rates to his CC that he should invest rather than paying off his debt is asinine and irresponsible. 

    1Reply
  • Cameron McCown
    Lender · St. Louis, MO · Member since 2019 · 45 posts · 27 votes
    7y

    @Syed H., I appreciate what you're saying.  Someone should absolutely have reserves saved up, and there should be caution around the purchase.  Holding just the "whether to pay off/whether not to pay off the credit card" conversation in isolation, I think there's a real argument to be made for not paying it off.  That doesn't mean money shouldn't be saved up on the side, and I don't recommend it, either.

    0Reply
  • Marci Stein
    Rental Property Investor · New York, NY · Member since 2011 · 956 posts · 510 votes
    7y

    Both , for sure. 

    0Reply
  • Sam Trentwood
    Rental Property Investor · Dallas, TX · Member since 2018 · 34 posts · 20 votes
    7y

    I would keep the money for down payment, and buy a property on minimal down payment preferably a multi family. Make your investment pay for the credit card debt than waiting another year to save up. Continue save the same amount of money while you are living your first investment property/house hack. You could use the savings to buy another house hack a year from your first buy.

    0Reply
  • James Murphey
    Waipahu, HI · Member since 2018 · 121 posts · 81 votes
    7y

    This is a tough one, with no right or wrong answer. Paying off your debt you essentially get 10-16% return. That is pretty awesome! If you are able to find an investment that makes a higher return, around 20% which is improbable, you would still only end up with a 4% return until those credit cards are paid off. I would have to be certain that my deal was a killer deal with an ROI that surpassed my credit card interest rate by a few percent. The other option I would explore would be a balance transfer or any other type of refinancing to get you lower interest rate, then purse the investment or at least you would have some time of 0% interest payments. Essentially get a for sure 10-16% return on your money or "potentially" wait and get a 4% return on your money and end up with a asset. You might potentially find yourself in a worse place if you make a bad deal too. May the force be with you!

    1Reply
  • James Barnhart
    Rental Property Investor · Ocala, FL · Member since 2016 · 226 posts · 140 votes
    7y

    @Zachary Zinn

    I would definitely get rid of the credit card debt. You will then be able to save much faster when that debt is gone. And, you will feel better about yourself.

    This is a no brainer.

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Zachary Zinn. Pay off debt this is a no brainer

    1Reply
  • Raymond N.
    Manchester, CT · Member since 2019 · 13 posts · 5 votes
    7y

    @Zachary Zinn kudos on saving up some serious cash, not a lot of people have that. Looks like most people in the BP community are recommending that you get out of debt first.

    0Reply
  • Lee Bell
    Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    7y

    Debt with 10% or more interest will only drag you down.

    I think if push came to shove I would rather take money from my IRA and pay the tax (I am old enough, no penalty) versus using high interest credit cards for some kind of emergency.

    0Reply
  • Junior Soares
    Contractor · San Jose, CA · Member since 2018 · 262 posts · 407 votes
    7y
    @Zachary Zinn Pay off your credit card debt. Reason: you will not yield a 16% ROI investing in anything with the 15k. Paying it off is the best investment you can make right now. Then you can save More money and look more attractive lenders
    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y

    If someone or some company were to offer you a risk-free, tax-free and hassle-free return of 10-16%?  You'd laugh at them or report them.  Too good to be true!

    You can earn that by paying down your revolving credit card debt.  No gimmicks. No hassles. No risk. No brainer!

    1Reply
  • Account Closed
    Investor · United States · Member since 2018 · 565 posts · 356 votes
    7y
    Originally posted by @Zachary Zinn:

    Question for you all to see what makes more sense to do right now.

    Debt: I have $15k in credit card debt that has an interest rates of 10-16% depending on the card. Minimum monthly is $350 but I usually put a little extra to about $500 just to work it down. Only other debt is a car payment but that isn't going anywhere for a while

    So currently I have $9500 saved towards either buying a home or paying debt. I'm planning to buy a multi family home so it will pay for its self, just have to wait for the right one to pop up. That said I'm also wanting to be debt free (minus car). For the last 5 months I've been saving between $1500-2000. Also have a 730 credit score....depending which one you ask and when lol

    So my question is should I keep saving for the multi family, or get rid of all of my credit card debt so that my income needs are lower? Part of it also plays into my job, I'm a home inspector and can set my own schedule so if I had less debt I could cut back on how much I had to work and be able to enjoy life more. 

    Thoughts and opinions are always appreciated. 

    Save 10%

    Put 20% into debt (attack one at a time by eliminating the smallest first)

    Live on 70%

    0Reply
  • Shawn DiMartile
    San Diego, CA · Member since 2018 · 11 posts · 6 votes
    7y

    @Zachary Zinn definitely pay off the credit card debt first. The high interest rate would negate the returns you would be making on a property. If you were paying down a debt that had a low interest rate, like say below 5%, then I would say go ahead and save for properties. Paying off the cc is a no brainer in this scenario to me.

    0Reply
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