Paying Down Credit Cards Before You Buy an Investment Property3 min read
The first step to making any large purchase like real estate is having pretty good credit and paying down debt. Many things can impact credit. Mostly, life kicking your butt can affect it the most. As my son would say, “It be like that, sometimes.” Translation, it happens to the best of us.
There is NO magic bullet to fixing credit or paying off credit cards. Think about the length of time it took to do damage to your credit and give yourself that amount of time to fix it. Although it may take a bit of time, there are things you can do to help yourself along, especially if you have credit card debt.
A few years ago, I decided I needed to have 0 credit card debt and a 0 balance on a revolving line of credit I’d have for what felt like a million years. There was a high-interest credit card with $1,500, and a revolving line balance of $6,500, the total debt was $8,000.
The easiest way to pay off debt is to get the lowest interest rate you can and make the most you can to pay off the debt. I applied for a 0% interest rate card which would lock in that rate for 14 months. I rolled both balances onto this card intending to pay it off within the 14 months allotted. If I paid $571.43 every month, I would be debt-free within 14 months. [I divided 14 into 8,000 to give me the payment of $571.43.] I almost made it, but I had a higher balance toward the end than I wanted.
Once I realized I wouldn’t finish paying the entire $8,000 within 14 months. I applied for another 0% interest rate card and rolled the remaining balance over. The remaining balance was about $1,500, and I was able to pay that off within three months.
I do understand that not everyone can get a 0% interest rate card, but most people can get a BETTER interest rate card. The key to paying credit card debt off is to make larger payments and have a lower interest rate.
When thinking of investing in real estate, you want to have your finances together. That will help you qualify for a mortgage if you are going that route or it will give you access to money for renovations if you go with a fixer-upper. Either way, having your finances in order is almost mandatory.
The biggest issue with having your finances right is debt carried with credit cards and student loan. However, a student loan is an entire series of articles so I won’t go into that at this time.
If most of your debt is by way of credit cards, tackling them as quickly as you can, is your best bet. You can do that best by transferring debt from high rate credit cards to 0% rate cards or cards that have a lower rate than you currently have. The closer you can get to 0% interest rate, the quicker you can pay down the debt.
Ok, let’s recap with some math.
You have $10,000 in debt with a 26% interest rate card. You get a 0% interest rate card, and you have a locked-in rate for 18 months. You will want to pay this card off within those 18 months. Divide the debt into the months to pay it off, and that will give you the monthly amount that you should pay. [10,000 divided into 18, equals $555.56 per month.]
In closing, even if you can’t obtain a 0% interest rate card, shoot for a lower percent card to work on paying down your credit card debt, especially if you believe it will hinder you from purchasing real estate.
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