Should I pay debt with my IRA? or should I invest the IRA?

[Adriana Vergara]

Hello ALl! first post here... My name is Adriana Vergara, I´m 35, single, no kids. Journalist background (worked in CNN for 8 years) I Now I have a soccer school in Atlanta GA, and also I became an apprentice in real state thanks to COVID and my boyfriend.

I´m trying to Straiten the boat here, to be able to start buying real estate...

So....

- I´m $34,373 in debt on credit cards. (I know.. it just happened and now it's time to make things right).
- At the same time, I have an IRA with a $68,806 net worth.

I have spent the past year helping and learning with my boyfriend who´s a realtor and who 4 years ago started doing flips. I have spent the past months reading, learning, listening to podcasts, youtube channels. etc.. and definitely I know I want to do this, I want to start with something, so one day I can talk about my own rental portfolio.

I have never bought a house before, so I still have that option to buy with a 3 or 3.5% down, but of course, my DTI is just too high...

So... the question is... Should I withdraw part of the IRA to:

• A- Pay the total of your debt!
• B- Pay part of the debt (at least leave it in 30%) and use the rest for a downpayment
• C- Don´t use your IRA money to pay the debt! just find the way to use someone else's credit (I have that option as well) you put the down and go 50-50 with that person on the property
• D- YOU have no idea what are you talking about, TRY TO DO THIS INSTEAD (please give me some suggestions!!!)

Here´s the breakdown of my cards:

• AMEX - $19,135 (I have an installment plan, at 7.99% APR, they won't close my account when I pay off the card) (credit line 22K)
• VISA WellsFargo - $6,865 at 21.99% APR (credit line $7,350)
• DISCOVER - $3.369 at 11.99% APR (credit line 7k)
• CHASE Freedom - $5,003 at 22.99% APR (credit line $5,500)

I have no more savings.

About my income: I pay myself around 3K a month and I get a 20% commission on every transaction when helping my boyfriend representing sellers and buyers.

I'm so compromised with this, that I just sold my car (I had a loan for 19k and got 20.5K for it) I know I can deal without a car right now and I want to lower down my monthly expenses to see where else I can put my money.

So... is it a good idea to use the IRA money to pay debt? or how else can I use it?

PS. I already know about the 10% taxes that I'll get charged if I decide to withdraw from the IRA, I know that I will pay a penalty (not in the first 10K if I use them in a first house). But hey... I'm just trying to find a way to start from 0 or to at least do something.

Thanks all for reading all this way!! In advance, I appreciate all the comments and suggestions.

Best regards.
Adriana.

[Kevin Sobilo]

@Adriana Vergara, I think you laid out your situation really well. You showed you are serious and have given this a lot of thought and started educating yourself. You also identified what you feel like is your biggest obstacle.

You mention your boyfriend doing flips, but mention yourself wanting to have a rental portfolio.

First off, I'm not sure you need to address your credit card debt to start investing your money. For example, if you're boyfriend is going to do a flip that requires $30k out of pocket plus a hard money loan (which are based on the deal moreso than the borrowers), why couldn't you be a partner and contribute $10k and get a cut of the profit at the end?

If you want to focus on rentals, the BRRRR strategy is probably a way to go. If the market where you want to acquire rentals is cheap enough you may have enough to buy and rehab a property with just the cash from your IRA. If you are a little short, maybe you can let your BF lend you money or to invest as a partner. You could also seek a hard money loan especially if you have your bf as a partner because he has some experience and that will make it easier to get a hard money loan.

You don't have to use conventional conforming loans to get started. You can use hard money loans or portfolio loans from local banks and credit unions. Create an LLC and have the debt in the LLCs name with you has guarantor when you refinance after the rehab. The debt won't even be on your credit report. So, it won't affect your DTI ratios.