Debt payoff or invest

[Zach Henson]

I just read a post by another member that made me really think. I am currently a senior in nursing school and work a part time job. I have around 20 grand in debt, but have the cash on the sideline to pay for it. I planned on just paying the loan (auto loan, 2.99) as normal and investing in a property next year when I get a stable w2 job. My question is should I pay off the loan and save up as much capital by next year or hold off and keep my options open. I would love to buy a rental property before I graduate, but without stable w2 income I doubt a bank would want to give me a mortgage.

Thanks in advance!

[Charles Jabaley]

@Zach Henson hey Zach! Good on you for planning ahead and weighing your options.

Some might argue otherwise, but investing your money in real estate instead of paying off your debt quicker will likely leave you thousands of dollars ahead of those who prefer to go for what seems the safer opportunity - especially since your debt is very low interest.

Your investment can offer much more security and give you more options if you were to lose your other source of income. Just because the experts tell you to do it, it doesn’t mean it’s more reasonable to pay off debt early. Psychologically, it feels better to a lot of people to pay off debt and establish a clean slate before putting money towards an asset. But that doesn’t mean it makes more financial sense.

As someone mentioned in this thread, methodically paying off debt is likely going to be more beneficial to your credit score than paying it off more quickly because it shows a longer trend of consistent payments.

If I were you, I would run the numbers to make sure I’m making an objective, logical decision as opposed to an emotional decision. Figure out exactly how much interest you’d save over time if you were to pay off your debt more quickly, and weigh it against expected returns and equity buildup of an average real estate investment you’d likely get here in Chattanooga. I believe it will probably be more profitable (especially in the long term) to get started with investing.

With that being said, some people can’t STAND being in debt and lose sleep over it.. if you’re this type of person, it may not be a bad decision to take the less profitable route if you’re more conservative/worried about your debt. Peace of mind goes a long way for a lot of people, and it’s not worth it if keeping the debt is going to cause you extreme stress/worry.

Personally, I believe you could leverage a real estate investment to help you take more control of your debt down the road, creating another income stream. I would recommend investing first, but like I said, it all depends on the numbers!

As far as talking to a lender, I would definitely recommend establishing a relationship with a local lender.. the better they know you and your situation, the more likely they are to trust you to pay off the loan and give you what you’re looking for. It’s also a good look being proactive and taking these steps early - it will build your credibility with them.

I saw Chattanooga is the area you’re wanting to invest in - great choice! I was born and raised here in Chattanooga, and am currently a Realtor here with Keller Williams. As I’m sure you’ve noticed, inventory is extremely low right now, but hang in there! One of my clients and I were still able to find a great deal on a duplex in East Ridge last week, so opportunity is still out there! But I expect the market to open up in the coming months as virus restrictions and unemployment hopefully continue to drop, and that’ll definitely make things easier!

I work with investors here all the time and absolutely love it, I would love to help you however I can! I'm happy to recommend some excellent local lenders I've had good experiences with here in Chatt, set you up for MLS listing notifications that fit your criteria, etc... whatever helps man. Feel free to shoot me a message anytime. Hope to hear from you, and best of luck with nursing school and investing!!