Windfall, Pay Off Credit Cards Or Invest?
I have a stock option maturing this fall for about $20k that I could use to pay off all of my credit card debt, or invest in my next (second) piece of rental property. Which do you think is the smarter move?
I'm thinking I'd like to get all my liabilities paid off asap, but I don't want to delay my asset building for a year or more either.
thoughts???
I'm no expert but getting that high interest debt off your back would be the smarter move, in my opinion. Even if you don't put that whole 20K into paying your debt, atleast a substantial amount.
Liquidating a 21% credit card debt is a good investment. It should improve your debt load and credit score significantly. You should be able to get better mortgage rates and possibly at a higher LTV.
Hi:
My vote is for paying off the credit card. Reducing your debt loads puts you in such a great position financially and emotionally. All of your future investing will be better for it.
Lucky you! I wish I had the opportunity to pay all of my debt at one time.....Hey if, you still aren't sure what to do, give me the money and I will SHOW you!!!!!
Can you create more interest with the money than what you pay?
My two cents...get out of the whole before you add more weight.
It's all about opportunity cost. Where will your money work harder for you? If you can make a higher rate of return (say 30%) on your investment than you will pay in interest (say 21%) on your credit card debt, then it might make sense. It depends on the strength of the investment.
Use the difference (9%) to start paying down your debt. Your debt goes down while your equity grows! Ain't this game fun?
Hello.
Personally, if I had said amount, I'd set that money in an account and use it as the basis for 100% NOO loans on at least two properties that will produce significant monthly cash flow.
This option will allow you to hold onto the entire amount, purchase the investment properties, gain a monthly cash flow and start paying off your credit cards.
You could also start to pay double or triple on your credit card balances once you get the money given the fact that you'll be making a higher monthly cash flow. Doing this alone could potentially help increase your credit limits with those cards therefore helping you in the future if the credit is needed for your rentals, such as repairs, upgrades etc. Paying off the balance in full doesn't have the same effect as paying double or triple in the credit card companies eyes.
An idea might be to find a credit card that has 0% balance transfers and transfer the balances to that card and then use the 20k to pay off the balances within the time that the rate is 0%.
Either way you decide to go, I wouldn't drop the entire 20k on either side. Having 20k in credit isn't as financially powerful as having 20k in the bank, in my opinion.
Good Luck on what ever option you decide.
[ Edited by diatribe on Date 01/29/2004 ][ Edited by diatribe on Date 01/29/2004 ]
Hey,
Pay off the credit, no question.
But several quick points:
1) The option may or may not be worth $20k in the fall. I have to guess you are looking at the stock price now and as you know it can go up or down.
2) Is $20k the difference between the exercise price and the current price? I know many people who calculated the value of stock options incorrectly.
Thanks for the replies, all.
Bruce, I am aware of the way the stock options are valued at cash-out, and that the stock value is not fixed between now and then, but thanks for the heads-ups anyway.
I think we've decided to split the money between direct credit card paydown over the course of several months and using the rest to fund the purchase of another investment property assuming a suitable one becomes available.