Eliminate debt or focus on saving capital?

Question

Overthinking about overthinking. Newbie here and planning on learning, reading, practice analyzing and just getting myself as educated as I can before I make any first moves. But my questions is regarding priorities. I have a small-ish amount of consumer debt ($10,000) and not nearly enough capital saved. So do you think it's smarter to focus on getting rid of the debt first and THEN save (might take 1-2 yrs) or focus on saving capital first to get started sooner?

Kyle J. · Answer

If you can only pay one off, I'd definitely pay off the credit cards.  They have smaller balances (so easier to tackle) and a much higher interest rate.

As for the car loan, as much as I don't like consumer debt, I would just keep it and let it get paid down according to the payment plan if paying it off early is going to keep you from investing.  You have a good interest rate on that loan and could easily outperform that with a real estate deal, and essentially have your real estate investing help pay off your car by earning a higher rate of return.

Account Closed · Answer

@Jackie Comitino

Consumer debt is bad debt. Always get that to zero or very very close. Best way to ensure you’re completely average for the rest of your life is to buy crap like cars and boats and electronic crap that you don’t pay cash for and put it on a card or monthly payments. Houses I buy are low 300’s and my mortgage is barely higher than a new decent car, and practically equal to a new 3/4 ton truck. Truck worth half in 5 years, house worth ~5% more in 5 years... buy stuff that makes money and appreciates, not costs money and depreciates. Get rid of the consumer debt.

Matthew Aubert · Answer

@Jackie Comitino pay off cards first since it’s small debt plus highest interest rates. Then roll payment into car loan and pay off. You can still look for real estate deals. With the info on here you can start investing too. Tons of ways to get started.

John Wijtenburg · Answer

Good advice above.

For repayment priority, consider this nugget that helped my mindset.

• Start with the highest interest rate loan
• Multiply your interest rate by 10 (e.g. 6% becomes 60%)
• Allocate that percentage to paying down that loan. That is, 60% of excess cash to your debt and 40% to savings
• All excess cash should go to the loan if the interest rate is greater than 10%

This get's a little funky when consolidating debt in a 0% interest balance transfer. In that case, I would still allocate 100% to paying down the debt because it will reset eventually.

In the meantime, start building up your network. Lack of cash should never be a reason to sit on the side lines.

• Connect with deal sources - brokers, owners, and influential third-parties - and build fruitful relationships
• Create a system to efficiently evaluate every deal you come across
• Find a mentors on BP or in your area that can give you advice along the way
• Build routines and habits help you stay consistent with your prospecting
• Get a good opportunity under contract - the money will come, even if you need to flip the contract

Chris Salerno · Answer

Leverage! what is the monthly payment?

With the money you have currently could you purchase a property in your area that cashflows the amount of your debt? I would go that route. I would find a way to purchase a property that cashflows the amount of your debt. I would then start saving as much as possible.

I hope this helps and good luck! Looking forward to your success.

Zach Stillman · Answer

@Jackie Comitino

Pay off credit cards first.  See if you can balance transfer to a zero % balance card for 18 months for 0-3% balance transfer fee.  That should make you monthly payment to pay off around $260/month for 16 months (with a 2 month cushion).

I used the capital one venture card 0% balance transfer offer to accelerate out of debt before.

George W. · Answer

Both. Start budgeting better. Pay yourself like another bill monthly before paying anything else. Then after you pay yourself start sending in some extra with the payments on the consumer debt to pay it down quicker. Also you can pickup another job to save more monthly much quicker. Depending on what your plan is for rei you should be able to still get a mortgage with 10k in debt as long as you have income. Talk to a mortgage guy

Kyle J. · Answer

I'd say more info is needed on the debt.

For example, if the debt was a car loan with a relatively low interest rate (2.9%) and set payments and payoff schedule so you knew that it was going to be paid off in the next 24 months no matter what, then I'd probably say let it ride and focus on your savings.

On the other hand, if the debt was a high interest (24%) credit card that had a balance that was growing at a pace that was greater than the minimum monthly payment, then I'd say forgo the savings and do whatever you could to pay that debt off as soon as possible.

Jackie Comitino · Answer

you guys have helped a ton and confirmed what I kinda already knew. Much appreciated.

Cody Hilke · Answer

@Jackie Comitino I’m not sure what your income is but $10,000 in consumer debt should be easily cleared in a year or less. If you can find $1,000/month to put towards that you shouldn’t be investing in real estate. Not trying to bash but part of a good defensive plan in real estate is being able to drastically cut personal expenses if you have struggles in your real estate investing. Otherwise you can lose tons of equity through foreclosure or inability to maintain a property.

Eliminate debt or focus on saving capital?

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