Posted by Steve-DC on February 20, 2002 at 10:38:48:
NT
pay off bills or invest in re - Posted by linda
Posted by linda on February 14, 2002 at 20:46:35:
Hi everyone,
I need an opinion on what would be the smartest way to go–
I have a 594 tu score and my husband has a 627. Credit is fine except for being maxed out on credit cards. I have 20k and that will pay off 7 credit cards that are maxed or close to it- all that will be left will be 2 credit cards at less than 50% of their limit. I am hoping that will increase our credit scores enough to help with financing our re investments. Our plan would be to pay them off, increase our scores and take out a 100% home equity to have access to cash.
I think it makes more sense to pay off the debts which will not only increase our score but will also reduce our debt ratio. But now we take away money to invest with???
What would you guys do? Do you think paying off the bills will increase our score enough? Any and all opinions greatly appreciated.
Thanks,
Linda
Re: pay off bills or invest in re - Posted by Rusty
Posted by Rusty on February 16, 2002 at 02:00:02:
I’d pay off the cards. Credit card interest is killer when you calculate up how much it’s costing you. Not only that, but the peace of mind knowing that debt is not hanging over your head is worth a lot. BTW, be sure and CLOSE the credit card account so it won’t show up as AVAILABLE credit. The lender assumes you could go out and charge 20k tomorrow if it’s still open and has to factor that into his equation.
Re: pay off bills or invest in re - Posted by David H
Posted by David H on February 15, 2002 at 17:06:55:
If credit card interest is 18.5%, paying off the cards is a guaranteed 18.5% return. Where else can you find that?
Re: pay off bills or invest in re - Posted by Dave T
Posted by Dave T on February 15, 2002 at 15:53:12:
Call me fiscally conservative. If you have nine credit cards with a total debt of over $20K, how much are you paying in interest (finance) charges each month? If you are just making the minimum payments on each card, you are never going to get out from under the credit card debt load.
I am reasonably certain that your credit scores will never improve with nine credit cards that are nearly maxxed out. In this day of low interest rates, consider looking for a debt consolidation loan to refinance the mortgage on your house. Adding $20K and closing costs to your mortgage balance may increase your monthly mortgage payment some, but surely less than the credit card payments you are making now.
First, pay off your highest interest rate cards first – then cut them up and close the accounts. Keep one or two credit cards that have reward programs such as airline miles or cash rebates. For the account(s) you keep, pay down the balance(s) and always try to keep at least 75% of your credit limit available. For the next year, leave your credit cards at home. Pay cash for your purchases whenever possible, only using your credit cards for planned, higher cost purchases. This will force you to eliminate impulse buying with your credit cards.
Now with this plan, you (nearly) eliminate your credit card debt, rein in your spending by forcing impulse control, raise your credit scores, AND keep that $20K in savings available for your real estate investments.
The best part is that most of the money you used to spend on your credit card payments is now available to add to your investment account. When you pay your monthly bills, pay yourself first by adding to your savings.
Now I don’t know if you are overextended or comfortable with all this debt. I also assume that you must be doing something right to have this credit card debt and still have $20K set aside. Sorry if my comments sound a little harsh, but I have seen others in similar circumstances just sink deeper into fiscal disaster without taking positive steps to change their spending habits and learning to live a little below their means.
Re: pay off bills or invest in re - Posted by KC Questions
Posted by KC Questions on February 15, 2002 at 12:23:13:
I have been doing some reading on credit scores and I was told that it is counter-productive to pay off the entire balance of your credit cards if your intention is to impress lenders. Lenders want to be assured that you can handle debt responsibly, and if you pay off your credit cards entirely, that you would be a risky borrower since you have access to all those funds and no history of being able to handle all of that debt.
I read that the optimum scenario is keeping the balance of your credit cards within 25-33% of your limit at all times. In theory, this method should boost your credit score, while reassuring lenders that you can handle debt.
Re: pay off bills or invest in re - Posted by JoeS
Posted by JoeS on February 15, 2002 at 09:01:39:
I think a balance has to be met between paying off the debt and having money to invest. It really depends a lot on what you need for your area. In my area, NY, I can buy a NICE sfr for 20K, do some minor rehab and sell it for 50K! So you see, the amount of cash is not the issue, it is what you are able to do with that cash. If 20K will only buy a parking spot, it is real important to be able to borrow from somewhere, either a conventional source or hard money. Then your credit and DTI may come into play. Hope this helps.
Try a different route to get different results $$$ - Posted by Phamtastic
Posted by Phamtastic on February 15, 2002 at 07:23:14:
Invest in RE. There are ways to make lots of money without a lot of money using RE. I have only used my money for marketing, but I leverage everything else with others (money, time, experience, knowledge, credit). Why would I want to use my resources when I know I don’t have to. (I specialize in Lease Option.) Sure there are some deals that you need to step into with some of my own cash but, if when I am creative enough I always figure out a way to leverage. That’s the great thing about this creative REI. (that?s why it?s call creative)
If you pay off your credit debt than you are still playing their game. Their game is you borrow and you pay. Why don’t you play your game. Generate cash and in 1 or 2 deals you can just pay your debts like you just describe. Paying off debt now increases scores and does things the slow way, but invest in some marketing and the cash will take care of whatever bad situation you got yourself into in the past.
If you went to buy anything and you said…I have cash, no one cares about your credit so generate the cash and credit scores is a mute issue. Once again, you can get into REI without any of your money, you can be creative and your credit scores and your money is NOT NEEDED!!
So place that ad, buy that bandit sign, invest in creative marketing, purchase those books, and go to those seminars, then apply what you learned and the cash will come! Do you want to be financially independent now or later?
I wish you much wealth.
Phamtastic
Invest in re, then pay off bills - Posted by Mitchell
Posted by Mitchell on February 15, 2002 at 01:17:17:
This is actually a no brainer. Use savings to invest. Make money. Pay bills. Do some quick turns or one good profit maker, take the profits and then consider paying off the bills.
It is far and few between that we get a chunk of cash to work with. The chunks of cash are what we need. With the $20K you can buy several tax properties, fix them and sell for good profits.
What can you do more with a better debt ratio? You might be able to get more of an equity loan. That is good. But what are you going to do with that equity loan and how much are you going to get? I would suspect that just because you paid down $20K you will NOT get $100K in lending power, maybe you will get $40K. What are you going to do with $40K that you cannot do with $20K.? In my area, I need $100K to be in a decent area; $40K still keeps me in the slums.
Therefore, buy real cheap in a decent area, fixup, sell high and bag the profits. It is a false idea to be rid of debt at the expense of investment capital. Six months worth of interest on $20K. is a small price to pay for the ability to buy a cheap fixer for cash. Also, the cost of a new loan, even an equity loan, is more than the cost of interest on $20K for a six month or one year period. You gain nothing.
If you pay down the cards, you are forced to borrow again for an equity loan. You have not done yourself any good. You are still in debt and this debt is against your home instead of being personal debt. You also lost several months waiting for your scores to rise when you could have been out there rehabing.
Get comfortable with debt. If anything, get more credit cards and use them with intelligence.
Don’t think that your debt to income ratios are the end all. Your credit is good enough to get a No Income Check loan. Why are you looking at loans in the first place? Just do Subject to transactions.
Good luck,
Mitchell
Re: pay off bills or invest in re - Posted by Tim Fierro (Tacoma, WA)
Posted by Tim Fierro (Tacoma, WA) on February 14, 2002 at 23:25:29:
At a minimum, pay them all down to less than $300 to $500. That is an arbitrary number. It is nice to have some credit going on, but you probably do need to get the debt ratio down for future purchases if you get financing through traditional methods. So of the 7 you were going to pay off, leave a little on them. I don’t know what the max is on those cards, so you will have to judge how much to leave on an open balance.
Example would be if your Visa has a $5k balance and you owe $4,500; pay it down to $500. If your Visa has a $2k balance, pay it down to $200. I am not saying it has to be 10%, but using that money to pay down debt can only help your debt ratios. Instead of a $5k balance and $120 a month, you can bring it down to $500 balance and maybe have a $20 minimum payment each month.
This is only an opinion and maybe others who have had to deal with this will speak up on the best way to utilize the money.
Re: pay off bills or invest in re - Posted by GregNY
Posted by GregNY on February 14, 2002 at 23:24:44:
I agree with Talia, pay off the debt. Maybe even
negotiate with the credits for a discount. When
I started out I had terrible credit! You can buy
with no money when you have great or good credit.
But when people look at your credit and see that
low score, you become suspect. I would rather have
great credit than a pocket full of money. Just remember
that if you go broke but you have good credit, you
can always find someone to lend you money. And yes
paying down/off the debt WILL boost your scores. I’m
a little ashamed to say it but I went through this.
It took 2 months to settle in but I went from a
423 to a 627. I won’t tell you what it is now 
good luck,
GregNY
Re: pay off bills or invest in re - Posted by Brent_IL
Posted by Brent_IL on February 14, 2002 at 23:20:14:
Pay off 5 cards and keep $5,000. You need money to operate. See http://www.creonline.com/wwwboard/messages/71584.html for a good post by William Bronchick.
As your credit score improves learn to buy and sell without banks. I wouldn’t be anxious to jump into a HELOC.
Re: pay off bills or invest in re - Posted by Talia (NY)
Posted by Talia (NY) on February 14, 2002 at 23:00:50:
Linda:
IMHO I would pay off bills first…then you can concentrate on REI without worrying about making the payments…that’s what I am doing…I got rid of 2 of 3 credit cards…
Of course that was easier for me to do because I moved back in with my parents so I don’t have any rent/mortage payments!
Good luck to you.
-TAP
WEll that depends… - Posted by Houserookie
Posted by Houserookie on February 16, 2002 at 11:53:37:
You can negotiate a much lower pay off balance and request a pay in full or satisfactory mark on the credit report.
If you’re going to be late on bills, make it extremely late and negotiate a lower pay off balance. They’ll also stop the interest.
However, before doing this, make sure u get it in writing that the credit card companies won’t issue a 1099, which is taxable income.
Austin