Pay Credit Cards with Rental Proceeds?

[SavingSteve]

I'd really like some advice on what to do. I own a rental property from before I was married that was once my principal residence. But it's a small 1 bedroom so with a wife and dog now we wanted something bigger. When we were looking to move 3 years ago the real estate market was struggling to recover and I didn't want to sell it, so I rented it out to cover my costs.

Since getting married I ran up quite a lot of credit card debt. Since I have decent income I was just making the payments, but since I've begun to educate myself more I realize I really need to pay it off ASAP. I've been paying it down aggressively for the past year, and I've paid off 2 of the 4 cards using the Ramsey method, but the remaining balance is about $50k. Once card has a 21% APR and the other one 11%.

Now my tenant in the rental is moving out and I think I want to sell the property. I should net over $100k after all is said and done, and I can pay off the cards but I will not be able to put 20% down on my next home I will have to continue to rent and save.

It's hard for me to stomach giving up my 20% down payment money and continuing to rent, but the credit cards are a total rip off and I have to get rid of the balances now, rather than continuing to pay for 3-4 years to pay off the rest.

I do feel confident that I will not run up balances any more. The 2 cards I paid off are used lightly but the balance is paid off in full each month.

The mortgage broker says I will qualify with 20% down and my good credit. But deep down I think I should immediately pay off all high interest debt and build up a 6 month emergency fund before buying my next home.

Do you guys agree that I should just sell the rental and pay off the cards then save up for the next home down payment? Or should I come up with a hybrid approach?

[tripods68]

We paid all our debt using Dave Ramsey's method in the beginning of the year. Having no debt allowed us to saved our 6 months EF, fund our vacation for next year, and my kid's private tuition next year.

If you believe in Dave Ramsey's method you should pay off all credit balance (baby step 2) with the proceed of your rental property once it is sold. At that point, you should be able to build your EF towards of 6 months very quickly (baby step 3). Build 20% towards a down payment.

[snafu]

Am I correct in presuming DW is the driving force in generating all this spending [2 paid off CCs, 21% CC, 11% CC balance % 50K] ? Is DW aboard on getting yourselves to a firmer financial platform? Does your tenant depart at the end of September? October?

I suggest you begin by determining your credit [FICO] score to strengthen your position to ask for a reduction in interest on that ghastly 21% charge. Currently, most savings accounts are only paying savers about 1%. Alternatively, transfer the balance to a 0% CC or a Personal Line of Credit from a Credit Union or bank. You need to be aware of any transfer fees or extra charges, whatever they chose to call them.

Are you ok outlining net income and current monthly expenses/outgo which includes interest rates and late fees if typical. It's too difficult to make reasonable suggestions without understanding how your numbers fit

What price range do you/DW anticipate?

2nd, would you be willing to go through all cupboards, shelves and storage to identify items you no longer use, need or love? Would you be willing to sell the stuff that no longer serves your needs? It's so much work to look after things you don't actually use and worse, it's expensive and time consuming to move stuff.

Finally, having been through the process, you know there are a great many expenses that add costs at closing. You can't go through all this to end up 'house poor,' financially hobbled by an unaffordable house.

[SavingSteve]

Am I correct in presuming DW is the driving force in generating all this spending [2 paid off CCs, 21% CC, 11% CC balance % 50K] ? Is DW aboard on getting yourselves to a firmer financial platform? Does your tenant depart at the end of September? October?

When I was single I was lazy with budgeting and did tend to carry small credit card balances. I got away with it since I had good income and chose to ignore my bad behavior. When I was first married the bad behavior compounded and became a big problem since there were two of us, and my wife was starting a new career with very little income. However even now I have no late payments and a very stable job. She is definitely on board to get out of debt and stay that way. She never carried credit card balances before we married and I am really at fault here for encouraging us to spend beyond our means. This has stopped in the past 2 years and I am paying down the balances. Tenant leaves October 1st. Average days on market for comparable condos is about 40 days.

I suggest you begin by determining your credit [FICO] score to strengthen your position to ask for a reduction in interest on that ghastly 21% charge. Currently, most savings accounts are only paying savers about 1%. Alternatively, transfer the balance to a 0% CC or a Personal Line of Credit from a Credit Union or bank. You need to be aware of any transfer fees or extra charges, whatever they chose to call them.

My credit score is consistently above 760 but the banks refuse to lower the rates, I have tried asking for a reduction. Only the cards that I payed off agreed to lower my rates on future purchases, but the cards with balances refused. Im not sure if it makes sense to pay a balance transfer fee if I have the money in cash from the sale of my condo.

Are you ok outlining net income and current monthly expenses/outgo which includes interest rates and late fees if typical. It's too difficult to make reasonable suggestions without understanding how your numbers fit

I don't want to over complicate this thread with too many details. Either I pay off the cards with cash proceeds from the condo or I continue to pay $1000 per month over the next few years. But that's a lot of interest I will pay!

What price range do you/DW anticipate?

I don't know if you are asking about sale price or purchase price of a new place? Don't see how it is really relevant to the thread question. The proceeds from the sale will be over $100K after all is said and done.

2nd, would you be willing to go through all cupboards, shelves and storage to identify items you no longer use, need or love? Would you be willing to sell the stuff that no longer serves your needs? It's so much work to look after things you don't actually use and worse, it's expensive and time consuming to move stuff.

I'd only want to bother selling things of value and there are not many of those in my cupboards. It would take a lot of time to do this and probably not going to generate enough money to be worthwhile.

Finally, having been through the process, you know there are a great many expenses that add costs at closing. You can't go through all this to end up 'house poor,' financially hobbled by an unaffordable house.

Yes I agree. This is why my gut is telling me to wait on buying until I have no debt, a 6 month EF of about $20K and a 20% down payment.

Thanks snafu for your help!

[SavingSteve]

We paid all our debt using Dave Ramsey's method in the beginning of the year. Having no debt allowed us to saved our 6 months EF, fund our vacation for next year, and my kid's private tuition next year.

If you believe in Dave Ramsey's method you should pay off all credit balance (baby step 2) with the proceed of your rental property once it is sold. At that point, you should be able to build your EF towards of 6 months very quickly (baby step 3). Build 20% towards a down payment.

This is good advice and probably what I will do. Going into a new house with 50K of credit card debt and only $1K EF is really not a good idea I think.

If I can pay it off, not charge it up again and save up 6 months EF and a 20% down payment it will take me 2-3 years but I can go into the house with a strong position. I don't want to be faced with a bunch of new house expenses, repairs etc. that I cannot afford because all of my money is going to the stupid CC.

This situation is so incredibly lame but I did it to myself and it's going to be a bit painful making things right again.

[kork13]

I believe in simple answers... Yes, I think you have a great plan. Sell your rental condo, pay off all of your credit card debt, continue to rent for a little longer, and while you do that, make use of your healthy income to save up the remainder necessary for your 20% down-payment & build up your 6 month EF. Once you have those done, go ahead & but the new house for you both.

Sometimes, simple is beautiful.

[WhiskeyGirl]

Hello,

I would consult your tax adviser. Personally in my situation, it would be better for me to sell my rental and reinvest in real estate as opposed to paying taxes on the proceeds. Of course your individual situation may be different, but I would hate to see you pay a substantial tax bill that could have been easily avoided by just rolling the money to a new property.

[SavingSteve]

Hello,

I would consult your tax adviser. Personally in my situation, it would be better for me to sell my rental and reinvest in real estate as opposed to paying taxes on the proceeds. Of course your individual situation may be different, but I would hate to see you pay a substantial tax bill that could have been easily avoided by just rolling the money to a new property.

I may have to pay 3% of the proceeds to the state, but maybe not depending if I can show a loss or zero gain on the property. This is not a simple calculation and I won't know until I am in escrow.

The property is in the negative every month as a rental. Basically here in California there is a huge gap between the renters and the owners. The similar condos sell for such a high price, that when you look at the monthly payment with about 20% down, no renter wants to pay a monthly rent that high. But people are willing to buy... In my case we have out grown the small one bedroom being a couple with a dog, and don't want to live there, but a single person might see it as a very desirable place.

Probably I should have sold it before instead of renting it out but the real estate market was in recovery and I didn't feel good about it. Perhaps I should have bought a larger place in a more affordable area that we would not grow out of so quickly. Live and learn.

Basically I don't think the tax can really be a deciding factor when I am losing money every month. Basically the rent covers the mortgage, HOA and insurance but not the property taxes which are about $5K per year.

[Petunia 100]

double post

[Petunia 100]

Hello,

I would consult your tax adviser. Personally in my situation, it would be better for me to sell my rental and reinvest in real estate as opposed to paying taxes on the proceeds. Of course your individual situation may be different, but I would hate to see you pay a substantial tax bill that could have been easily avoided by just rolling the money to a new property.

Except he isn't buying another rental property, he's buying a new primary home.

[Petunia 100]

I may have to pay 3% of the proceeds to the state, but maybe not depending if I can show a loss or zero gain on the property. This is not a simple calculation and I won't know until I am in escrow.

The property is in the negative every month as a rental. Basically here in California there is a huge gap between the renters and the owners. The similar condos sell for such a high price, that when you look at the monthly payment with about 20% down, no renter wants to pay a monthly rent that high. But people are willing to buy... In my case we have out grown the small one bedroom being a couple with a dog, and don't want to live there, but a single person might see it as a very desirable place.

Probably I should have sold it before instead of renting it out but the real estate market was in recovery and I didn't feel good about it. Perhaps I should have bought a larger place in a more affordable area that we would not grow out of so quickly. Live and learn.

Basically I don't think the tax can really be a deciding factor when I am losing money every month. Basically the rent covers the mortgage, HOA and insurance but not the property taxes which are about $5K per year.

How long has the condo been a rental property? If it was your home for at least two of the five years proceeding sale, there is no capital gain tax on the first 250k of profit (500k for married filing joint).

There is no reason at all to keep paying 21% on your credit card debt, no matter what you decide about the rental. Chase Slate currently has a 0% promotional offer with no balance transfer fees.

https://creditcards.chase.com/slate-credit-card/learnmore-apply?CELL=6RRW&kwdID=lFN5tBAE_dc&adgrpID=65947221386&jp_cmp=cc%2FSlate+-+Brand+-+Exact%2Fsea%2FlFN5tBAE%2FChase+Slate

[SavingSteve]

How long has the condo been a rental property? If it was your home for at least two of the five years proceeding sale, there is no capital gain tax on the first 250k of profit (500k for married filing joint).

There is no reason at all to keep paying 21% on your credit card debt, no matter what you decide about the rental. Chase Slate currently has a 0% promotional offer with no balance transfer fees.

https://creditcards.chase.com/slate-...%2FChase+Slate

The condo has been a rental for the past 4 years. But I may be exempt based on a loss or zero gain. Either way I think I will sell it since it loses money each month it's like having a hole in my bank account. We dont want to live there it's 670 sq foot condo. But a single person who works in the area will like it.

taxes or no taxes, I need to stop losing money with this place and pay off the rest of my debt.