WWYD (What Would You Do)

10/25/2005

Our financial position has improved now that Sarah has started working full-time. Now we have a decision. To eliminate all debt…or to try and make more money. And I can’t decide.

We can realistically pay off all debt – which includes school loans and the little bit left on the car. We would only have the house left. And I can’t imagine what the feeling would be like to not have any debt. But then I started thinking. We could take that money that would pay off the debt and use it for another down payment on a house and rent our current one out. The idea of someone else paying my mortgage while I reap the benefits of the value of the house going up is really attractive. We can easily afford the burden of possibly having two mortgages and once it is rented out, it is no longer an issue. And then the next year, pay off the school loans. My main reason for doing this now would be that interest rates are suppose to keep climbing over the next few years. So it’s better to get in now.

But I just don’t know what to do…so I’m going to ask for some advice. What would you guys do?

  1. brian w. says...
    Oct 25, 10:15 PM

    Well you probably know my answer already, but I’ll say it anyway. Pay off your debt first. It makes for a more stable situation in the short and long run. Ask yourself this: if you were debt free except for your house, would you take out extra loans against your car and whatnot to put a down payment on another house? It’s basically the same question. If your answer is yes, then you’re nuts. It’s ridiculous to go into debt just to go into more debt, and then call that investing. Be smart, Matt. Think about what is wise, not just what makes you the big bucks.

  2. Dan says...
    Oct 26, 01:42 AM

    Well, a fairly rich fellow – Jim Ryffel – once said: “A penny borrowed is a penny earned. A penny saved is a penny lost forever.” But then again, you know my crazy life. I pray God gives you and Sarah wisdom.

  3. zack says...
    Oct 26, 08:38 AM

    As far as another house is concerned, make sure you taken into account all the initial costs of signing papers, the downpayment, cost of upkeep, etc.

    You already know my opinion.

  4. Josh says...
    Oct 26, 09:06 AM

    Get the school loans out of the way. No need for that monkey on your back. Then move on.
    (I’m gonna have a gorilla on my back come 2 years and that’s why I plan to move to Africa. I’ll let my gorilla go…)

  5. John L says...
    Oct 26, 10:05 PM

    Me? I would buy the house.

    My philosophy is that debt is not evil or bad – just something to be careful with. Used wisely, debt is what ultimately makes the big cash (unless you’re born pretty wealthy already). To make a lot of money, it takes a good chunk to start with.

    Take my brother-in-law. He bought a house for $80k, sold it 2 years later for $120k, and bought a 40 acre piece of property. Then he got a credit card with a $30k limit and 0% for 6 months, bought the ajoining 40 acres, and within six months had over doubled the money by selling building lots (and paid off the card). He’s been continuing along the same lines, and now owns a bunch of property, some of which he really doesn’t owe much on. This is all within the last two years – he had only had a rented apartment before that.

    Eliminating debt is a good short-term use of money, but if you have longer-term goals, managing your debt wisely is the best. Just be careful about it, and have backup plans in case you don’t rent the house for a few months, etc.

    Just my opinion (and what I’ll be doing as soon as I can afford it).

  6. Vic says...
    Oct 27, 12:30 AM

    Man my finances are all jacked up that is why i’m friends with your brother, but dude I know how to pray so I’ll pray that you guys get the right answer. Love this site and smart move by asking other bro.

  7. Bill Buchanan says...
    Oct 27, 05:42 PM

    make the debt go away . . . then deal with the house debt.

    All we have is one car lease and house and it feels wonderful. If I could pay off the house I would in a heart beat – I do make a little extra principal each month to help.

    Having more is not the goal – well, it’s not my goal :)

  8. Matt says...
    Oct 27, 07:58 PM

    Thanks for the advice so far everyone. Vic – good to hear from you! My bro has said some very nice things about you. Maybe someday we can sit down and actually meet and have a beer together – or do the parachute thing behind the truck.

  9. shuler says...
    Nov 1, 01:49 PM

    this is completly off the subject, but i just played the new Xbox 360….very nice….smooth

  10. Mr. D says...
    Jan 12, 10:46 PM

    Real estate has always outperformed the market. It’s also never too early to start investing. If your return on investment in the house is greater than your interest payments then do the deal!!! Let the conservatively meek sit back and wonder in 20 years and WISH they had done the deal.

    You’re young and if it does go bad you have plenty of time to recover.

    That’s Mr. D”CC” I think Sarah remembers her old, bald friend.


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