WHat To Do?

[materman]

Hey guys/gals, this is a great site with tons of great info.

Heres what I need help with. In two months I will be closing on the purchase of 80 acres. I would like to put $5000 down. I have the money right now(tax refund). But $5000 is right around what I owe on my three Credit cards with interest rates between 13.5-16.5%. I am not in any financial bind but just getting rid of the Credit Card debit would be a big relief, but on the other hand putting $5000 down on the land would be nice too. Any suggestions?

[disneysteve]

Paying off high interest CC debt is generally the best use for spare money. If you do that, though, does that still leave you enough money for your land purchase? And what is the interest rate on that loan?

[materman]

Hey Steve, the interest on the land purchase will be 9.0%

[disneysteve]

Originally Posted by materman

Hey Steve, the interest on the land purchase will be 9.0%

That's still a whole lot better than 13.5-16.5%. I'd pay off the credit cards with that 5K.

[materman]

But thats 9.0% on $80000 for 20 year

[creditcardfree]

Why is the rate so high on the land? Are you really financially ready to purchase it?

I would pay off the cc debt and possibly wait on the land. 9% for 20 years on $75,000 adds up too. Even if you can't wait, I'd pay off the cards because of their high interest.

Have you thought of changing your withholding? $5K is a large amount to be getting back, when you could have use of that money every paycheck. Check out the irs website for their withholding calculator.

[disneysteve]

Originally Posted by materman

But thats 9.0% on $80000 for 20 year

What is the purpose of the land purchase? Will you be building on the property? Do you plan to resell the land or do you anticipate holding it long term?

Without any more info, the best advice I can give is what has already been said: pay off your CCs and change your withholding so you don't ever get such a big refund again.

[materman]

Originally Posted by disneysteve

What is the purpose of the land purchase? Will you be building on the property? Do you plan to resell the land or do you anticipate holding it long term?

Without any more info, the best advice I can give is what has already been said: pay off your CCs and change your withholding so you don't ever get such a big refund again.

Yes I plan on building on the land and keeping it long term. I farm 160 acres so I usually get back a large return no matter what my withholdings are, also the interest on rural real estate in high right now it has nothing to do with my financial situation.

[Ima saver]

I would pay off the credit cards first, also.

[disneysteve]

Originally Posted by materman

I farm 160 acres so I usually get back a large return no matter what my withholdings are

I honestly don't know squat about farming but as far as I know, if you raise your withholding exemptions, you have less tax taken out no matter what your occupation or source of income is.

[jIM_Ohio]

I would do the following:

pay off the cc. Get rid of "bad debt"
adjust witholdings to get atleast 5k additional back...

once you own property, the mortgage interest should be tax deducatble

if you do not buy the land NOW, what is the "opportunity cost"?

[th_tan]

you should pay off that credit card debt 1st, that interest is a kill. You should always worry about your current debt before taking on anymore.

[PetMom]

I personally think land is a good investment.

But having credit card debt can be expensive
too.

If you pay off the credit card debt make sure you do
not go back to the charging habits that got you
to that amount.

Little use to pay off, then run back up the cards,
if you need emergency fund pay off half the cards,
and keep the other $2,500.00 for emergency savings.

[Scanner]

$5000 isn't really that big in the scheme of things but I am not sure why you would borrow money at 9% to invest in land.

9% on 75,000 for 20 years equals um. . .hold on. . .punching calculator equals about $135,000 (I did a simple compounding. . .chances are, the bank is going to be more complex).

So you are guessing the land will be worth more than $210,000 after 20 years or else. . .the question of the year is:

WHY DO IT IF IT'S NOT WORTH THAT?

Not to mention that you will owe taxes on that land every year.

Now. . .maybe you can farm it. . .like DisneySteve. . .I ain't know nothing about no farming. So, this may be more of a complex business decision than an investment decision. Maybe you can re-lease the land back out. Now we are getting into a bonafide business plan.

If it's an investment decision, just to break even, I'd imagine that $80,000 land would be worth about $500,000 in 20 years to feel you got a return on your investment paying for taxes and interest and losing other investment opportunity.

In short, I say pay off the debt and give yourself the immediate relief because I am not sure the long term investment looks all that attractive unless you don't have to borrow to invest in it.

Good luck.

[scarygirl]

I agree with the others. Pay off your credit cards and save some money toward the land purchase. 9 percent interest is ridiculous.


gals, this is a great site with tons of great info.

Heres what I need help with. In two months I will be closing on the purchase of 80 acres. I would like to put $5000 down. I have the money right now(tax refund). But $5000 is right around what I owe on my three Credit cards with interest rates between 13.5-16.5%. I am not in any financial bind but just getting rid of the Credit Card debit would be a big relief, but on the other hand putting $5000 down on the land would be nice too. Any suggestions?[/quote]

[Elgin526]

If you go ahead and put the $5K down on the land, how long would it then take you to pay off the $5K in CC debt? If you can pay it off in a relitively short amount of time, then assuming the land is a good investment in and of itself, I'd go ahead with the land purchase. I'd hate to lose out on a good investment just to save 6 months worth of interest on CC debt.

[click4credit]

Pay off the credit card debt as that is high interest and personal debt. If your buying the land as an investment then the interest you pay on the 9% land loan may be tax deductable making the actual rate even lower.