Pay off some debt or invest out of state?

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Pay off some debt or invest out of state?

Larissa Luna
Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes

Hello!

I'm wondering what would be the smartest thing to do with the 15k we have. We could either use it all to pay off some of our credit card debt to increase our credit scores and so that when do invest (we want to use the BRRRR strategy) we can do so without worrying too much about being declined for a refi because of our debt/scores.

We have about 24k total debt just in credit cards, so we'd have around 9k still after paying the 15k off.

Our goal is to invest out of state where it isn't so expensive, but now typing this out I'm not even sure if we could get a regular loan to purchase an out of state duplex with our down payment if our debt isn't lowered and credit scores aren't brought up? 

I guess I'm leaning toward using it to pay down debt but it would be nice to hear any opinions or maybe other ideas of what I could possibly do with it? Thanks!

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Brianne H.
Investor · Calgary, Alberta · Member since 2016 · 168 posts · 123 votes
7y

@Larissa Luna I would use it to pay down the credit card debt. Assuming regular CC rates of 20%+, the amount you'd be saving in interest every month might just be similar to the amount of cashflow you'd get from one or two doors. 

Again assuming high interest rates, can you transfer the balance to a line or credit or get a promotional rate of low interest? That might help keep the costs from escalating while you work on paying it down aggressively. 

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  • Ryan Bonner
    Rental Property Investor · Las Vegas, NV · Member since 2018 · 2 posts · 0 votes
    7y

    @Larissa Luna what is the ratio of your $24k to your credit limit? Not a financial expert, but from my own experience paying off a huge chunk of debt only made a significant increase in my score if it dropped me into the lower percentile of debt usage. $24k of debt w/ $100k available isn't as big of a deal compared to you only having $30k available and are pushing that limit. Also, the DTI ratio would be another factor to look at when making the decision as well.

    0Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Ryan Bonner

    Thanks so much for your input! Current credit card limit combined is 54k, so we’re at about 45% usage which is making a big difference in our credit. Prior to the increased balances my credit was around 718 and has dropped to the lower 600’s with nothing in collections or late payments.

    0Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Larissa Luna I hate to say this because I know you must be so energized to get another deal done but my gut says throw it all your credit card debt first. You will have such an easier time financing future investment properties with a better score. Hard Money and Commercial options won't care about your DTI but FICO will affect pricing big time.

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  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Alex Bekeza

    Thanks for the feedback. That’s what I’m leaning towards and will probably end up doing. Just didn’t know if there was something I was missing or not thinking of. Thanks again!

    1Reply
  • Bob Woelfel
    Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
    7y

    @Larissa Luna...I think you have to pay off this debt first.  I'm just a firm believer in every investor getting their own personal financial house in order before moving on to investing.  Not knowing your income of savings rate, but I'm guessing that if you throw this 15k into an investment you are going to be years away from paying off this CC debt.  You could use the cash flow to help pay it down, but then you're risking your cap ex and maintenance repair budget for the investment property.  I just don't think it's a great idea.  Get debt free and then move on from there.  

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Larissa Luna pay off credit card debt. This is a no brainer

    1Reply
  • Account Closed
    Rental Property Investor · Brooklyn NY · Member since 2018 · 263 posts · 469 votes
    7y

    @Larissa Luna

    $24k in credit card debt!  Get rid of that and do not add to it.  You mentioned "just in credit cards..."  I assume you have more debt that should be eliminated too.    

    2Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    7y

    I'd say pay yourself before you pay anyone else. Use your money to make money. Any chance you can house hack where you're living? 

    0Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Bob Woelfel

    Thanks for the input! That’s what I’m thinking, going to get rid of this debt.

    0Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Aaron Wade

    Well we also have 2 car loans, not much left to pay off on one and the other is about 16k. I will definitely work towards aggressively paying down the debt, thank you!

    0Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Kiera Underwood

    Unfortunately we can’t house-hack the home we currently own (discovered bigger pockets and investing after we already had our home). Thinking of selling and moving into a home we actually could house-hack. Thanks for the feedback!

    0Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Caleb Heimsoth

    Thank you!

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    What are the interest rates on your credit cards?  If it was me, I'd pay off the credit cards as the interest rates are usually higher and I'd feel better not having the credit card debt.

    0Reply
  • Brianne H.
    Investor · Calgary, Alberta · Member since 2016 · 168 posts · 123 votes
    7y

    @Larissa Luna I would use it to pay down the credit card debt. Assuming regular CC rates of 20%+, the amount you'd be saving in interest every month might just be similar to the amount of cashflow you'd get from one or two doors. 

    Again assuming high interest rates, can you transfer the balance to a line or credit or get a promotional rate of low interest? That might help keep the costs from escalating while you work on paying it down aggressively. 

    2Reply
  • Bjorik Mutize
    Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes
    7y

    @Larissa Luna knocking down some of that debt will definitely help you guys when it comes to obtaining financing!

    Spend the interim time learning the market you guys are targeting down to a tee!

    0Reply
  • Amy Beth
    Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
    7y

    @Larissa Luna o threat rates on credit cards are high so I would pay them off ASAP. I would delay buying any properties u til you pay them off. Then put away them and stop using them unless you can pay them off each month and if you trust yourself to not get back into credit card debt again. Make sure you are living within your means before buying real estate or you will get yourself into a jam as a landlord when unexpected costs come up.

    1Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Bjorik Mutize

    Good advice, we will be doing our research in the meantime. Thank you

    0Reply
  • Kelly Iannone
    Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
    7y

    @Larissa Luna hands down pay off the credit cards first and don’t carry a balance in the future (once the are 100% paid off). Having a good credit score with help you get lower interest rates which will have a direct impact on your cash flow if you are using leverage.

    0Reply
  • Jeremy Blevins
    Folsom, CA · Member since 2018 · 134 posts · 100 votes
    7y

    @Larissa Luna me and my wife bought our home about two and a half years ago and love it. Unfortunately it’s our biggest liability. We made the decision to sell our home a little while back and house hack and just now got into contract on a duplex. I know it’s hard stepping back but maybe you guys could sell or rent your current home and buy a duplex. You’d be saving money and paying off debt at a much faster rate. Then in a year or so you can always buy another home that you want to live in.

    2Reply
  • Eliezer Geneus
    Member since 2017 · 1 post · 0 votes
    7y

    @Larissa Luna

    Pay yourself first then figure out a palm to pay off the debt. It's there, there is nothing you can do. 15k is a go starting point, without knowing to much of your real estate strategy there's limit amount of info to help you

    0Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Jeremy Blevins

    Yea that’s what we’re thinking we’ll end up doing. I’m glad to hear it worked out for you and your wife, thank you for the advice!

    0Reply
  • Patrick Fraire
    Flipper/Rehabber · Long Beach, CA · Member since 2017 · 155 posts · 118 votes
    7y

    @Larissa What’s the interest rate on your credit cards? I would vote to pay those down personally.

    1Reply
  • Larissa Luna
    OP
    Real Estate Agent · Fillmore, CA · Member since 2017 · 27 posts · 8 votes
    7y

    @Patrick Fraire

    Most of them are pretty high, between 18-27%. Thanks for the advice, we will be going that route.

    1Reply
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