Good Debt vs Bad Debt

I have a conundrum that my head and heart are locked in battle over.

I currently have a large credit card debt from a previous investment - too long a story and theres a thread describing it elsewhere - I also have an equal or greater amount of cash that can clear the debt and leave me skint!!!!

My head says pay of the c/c debt and save like made for the next few years to buy another property or to possibly build my current IP as its DA approved for a Duplex.

My heart or my testosterone things are pleading with me to leave the credit cards for another day and make another purchase in a similar area as its seen some great growth on the last 12 months.

Head or Heart -

My gut feel is that although I'm not a fan of the C/C debt, the growth in the next period could well be enough to clear the C/C amount and allow for more IP's at the same time ?

Current debt levels on the IP is 74% so theres some more cash there to.

I have those old demons shouting in my head slow down, don't rush - walk before you run etc etc etc. You know the procrastinating ones.

I guess I'm looking at the numbers that show the Capital growth makes it a viable option + the fact the property's will be neutrally geared.

The credit cards will still be getting paid off just at a slower rate.

Ohh and the maths says the interest on the cards will be alot less than the equity earned in owning a 2nd and possibly 3rd property in this coming time. i guess that one line just answered my own question ? .

Cheers
Andrew

Sorry its the end of a long friday and I may be rambling :D
 
I did look at that, Applied with citibank platinum cards for one of the 4.9% balance transfers for the life of the transfer. Waiting on the result.

Its the difference of a few thousand at the end of the year so a consolidation loan of somesort is needed to reduce the % of the C/C.

Problem is its not 10k its a big number on the cards :(
 
An issue to bare in mind is how the credit card debt will effect your serviceability with the bank.

Right now you may have enough income to keep them happy. But if you leave the credit card debt there, and the next deal you want is stopped on serviceability requirements partly due to the credit card - even if you have the equity, you won't be able to use it.

Just something to think about. Personally I've gone for option B in my own life - the cash I've invested into the ASX (which I'm slowly drawing back out now) could have gotten rid of most of my personal CC debt. With the profits I've made there I could pay off the CC debt multiple times (though I'm still not :D), so understand where you're coming from.

All else being equal (ie. issue I first mentioned), I would look at what will make me the most $. In this case saving the credit card interest, or cap gains on another asset?
 
I heard on Tuesday night for the first time that borrowers are able to call the banks up and simply ask for the "no frills low interest rate CC" ???

Apparently they then take your flash silver sparkly card with all the fruit off you and re-issue you with a boring brown or blue card, but the interest rate is dramatically reduced.

Don't know if that is true......but a property guru told me so at a seminar, so I'm inclined to think it was utter HS.

Might be worth 22c to check whether it is true or not though.
 
My gut feel is that although I'm not a fan of the C/C debt, the growth in the next period could well be enough to clear the C/C amount and allow for more IP's at the same time ?

This sounds like gambling to me...

I'd pay off the CC to an amount you can manage (clock up and pay off in a cycle within the interest free period) while you have the opportunity and save in the meantime for the next IP.

IMHO - That isn't procrastination, it's a well thought out plan.
 
Our credit card debt equals what we paid for our last property.
I consider it a part of doing business.
I had one of the creditors call last week and noticed we were at our limit and only making minimum payments. They wanted to know if we wanted to convert it to a loan instead, so I can pay it off faster.
I told them no, I consider this debt payment part of the cost of doing business.I have no interest in paying it off at the moment.

It doesn't seem to hinder in our borrowing capablities.
The more we buy, the smaller amount we owe in comparison to our net worth.
 
I think you need to consider managing risks to your position. I would pay off the credit card, but leave the facility open so that if you have a short term emergency (you would have handled with cash) you can use the credit card.

Don't get too worried about your next investment until you have your own situation managed. Remember that if you take a gamble to get out of the hole, you could well be screwed if it doesn't go your way.

You will always be able to find good investment properties, even if you have to wait a while longer than you thought.
 
The last credit card I paid off with money I was planning on using for a downpayment for a property. Figured I'd save some interest while I was waiting to close th deal.
The credit card company decided after I paid it off to lower my credit 80%.I no longer had access to this money I needed to close with. Made for a stressful time. Swore I would never "park" my money that way again.
 
I'm a firm believer to pay off ALL bad debt. It is not making you any money - plus it is costing you money in interest, and also, it is affecting your serviceability for further loans/mortgages.

Clear the CC(s), increase your serviceability and save like made. You will be in a better position in the long term.
 
Seems the idea to pay off debt as opposed to holding it and buying capital appreciating assets bring out some mixed reviews and experiences.

I'll chat to a broker + my accountant about paying off the cards as some are mixed with personal, meaning it'll be difficult to get ATO allowances on interest etc.

My main issue has been missing out on the CG as the property in my chosen area is moving well.
 
Andrew, it doesn't have to be "all or nothing".

Why not find out how much you can borrow (max LVR) then see if you can use a smaller deposit and pay off part (or one) of the credit cards but retain enough for a deposit on an IP, even a cheaper one in the area. Even better if you have a way of separating the deductible CC debt from the non-deductible.

From what you say a considerable amount is involved, which may allow you to do both.
Marg
 
Consider too, that if you are already in a bit of a hole, you need to carefully manage the risk of further 'digging'. A higher risk play for 'catchup' could be bad news.
 
Andrew, it doesn't have to be "all or nothing".

Why not find out how much you can borrow (max LVR) then see if you can use a smaller deposit and pay off part (or one) of the credit cards but retain enough for a deposit on an IP, even a cheaper one in the area. Even better if you have a way of separating the deductible CC debt from the non-deductible.

From what you say a considerable amount is involved, which may allow you to do both.
Marg

Hi Marg,

Your thoughts are very similar to mine. I don't want to waste a good opportunity,but also don't want to get into trouble.
I have a small LOC and business card with ANZ thats got about 20k between them that is 100% Ip related.

I'll look at placing the refinance cash onto that so as the main IP loan is clean and 100% Tax Deductable then redraw from the ANZ LOC to use as deposits of new IP. I'll use personal savings to pay the personal cards that are twice the interest rate. There by keeping the IP loan 100%TD.

I think I have this sorted. Just the structure to keep IP loan funds clean is crazy. But I'd rather do that first then argue with the ATO later.

Consider too, that if you are already in a bit of a hole, you need to carefully manage the risk of further 'digging'. A higher risk play for 'catchup' could be bad news.

thanks for your input VY. I've read many of your past posts and really appreciate the honesty you respond with.

I am sitting on a tightrope at the moment with regard to whether I'm being to ambitious or whether I'm just procrastinating....... I do have debt that I'd rather not have. At the moment its managable and my DSR is not over 100 so the banks are still lending.

I would like some advice on how best to gain some extra equity by LOC from the current IP - If there is an existing 80% mortgage can I use a second lender for the LOC upto 90% or is the only way going back the the current lender and asking about a 10%LOC?

If I can do that it means the 10%loc will be used to clear all none investment debt and pool it to one cheaper interest rate loan without corrupting the Ip loan.

Am I mad? Is this making sense to those of you who have tried to remove bad debt?

PS - I do realise I have marginally contradicted myself in the above two statements.... The Marg response is how I'm doing it right now with No 10%LVR LOC available - The VY response does change things if I can get a 10% LVR LOC on the IP taking it to a total of 90%LVR. It would mean I can remove all the high interest credit card debt and consolidate it into a much lower interest loan to pay off without contaminating the Ip loan.
 
My Broker emailed an update after my request to push to 90% LVR on my IP loan.

The update is they will look at it with a new full application + LMI on the entire amount - about 15k in LMI?

Can I just upstamp to 90% or is a new full apllication the only way?

Now the extra 10% is well above the LMI amount but I'm sure i read that people have been able to have just the extra 10% charged on LMI as the original loan is already approved. Have i missed something? or if I choose the 90% I've got pay the 15k.
 
Prudent financial management is essential to long term success: manage it how you will. We all have different levels of comfort - take different levels of risk.

A thought occurs to me. Can you pay off the credit card debt with the funds you have and then redraw the funds for investment purposes? Does that make the interest after that time tax deductible?
 
What if the so-called bad debt was a credit card costing 12% p.a., but you knew you could consistently make 20% p.a. in some investment elsewhere? It wouldn't make sense to pay off the card, ever.

Do you mean knew or do you really mean thought?

I've never heard of a 20% risk free return as a 1 off let alone consistently.

I'd be paying off the CC debt as that is a guaranteed after tax return of the CC % rate.
 
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