I have a rental w/33k equity. Refinance to pay 20k credit debt?

7 Replies

I am just getting started in reale estate. I have a primary residence and a rental property (33k equity two years after purchase). Unfortunately, I have 20k in credit card debt. Should I refinance to take out cash to pay down the credit debt? HELOC?

I agree with David about limiting spending going forward, but for the now, look at the interest rates. Credit Card is probably costing you 18-22%, HELOC should be 6%. 12% savings on 20k is 2400. Sounds like a good ROI to me

Originally posted by @Katherine Pirkle :

I am just getting started in reale estate. I have a primary residence and a rental property (33k equity two years after purchase). Unfortunately, I have 20k in credit card debt. Should I refinance to take out cash to pay down the credit debt? HELOC?

Refinancing isn't free and they only lend up to 80% of house value if you're lucky.  Most do 75%.  What does $33k represent of the rental's value?

You'll probably be better off putting this in a Dave Ramsey type debt snowball.  List your cc debts smallest to largest and punch them in the face one by one. This will also best aid in changing spending behavior going forward.  We remember what we had to work for.  

 

Refinance? If possible, absolutely UNLESS you can wipe out that CC debt quickly. Right now you have no tax benefits paying CC interest. Interest on investment properties is 100% deductible. 

Originally posted by @John Thedford :

Refinance? If possible, absolutely UNLESS you can wipe out that CC debt quickly. Right now you have no tax benefits paying CC interest. Interest on investment properties is 100% deductible. 

Hmmm - now that is a good point.  Hadn't considered the tax implications.

What I was going to say was the OP is shifting high priced unsecured debt for low-priced secured debt.  Some would say this is bad (they cannot take away your rental property if you are suddenly unable to make those CC payments) and some would say this is a great plan (significant reduction in interest).

Perhaps there is some utility here in doing a blended solution?  Divide and conquer...