Question

Question for the gallery.  We are selling my wife’s primary home turned rental property and stand to net approximately $30k from the sale.Question for the gallery. We are selling my wife’s primary home turned rental property and stand to net approximately $30k from the sale. We want to move somewhere in the next 3-5 years to a larger home and want $30k at a minimum for a down payment. We have two scenarios in front of us and I can argue both sides so I’m curious about everyone else’s thoughts. $30k in net sales from the house We have $33k in revolving debt that will be paid down in ~3. 5 years with tax returns, raises, and overtime applied. This debt in total amounts to $800 a month in payments and would be snowballed/avalanched to zero. Would you park the sale in a HY account and pay down the debt? Or cover the debt up front and begin saving the monthly contribution? We are not moving until the debt is paid one way or the other.  

Answer 1

Pay off the debt, there's no good argument to the other side. (Also, fix your withholding and stop lending the government money at 0%. )

Answer 2

Pay off the debt with the proceeds. or come as close to it as possible. Then take what you would have been paying on the debt and drop it into a HY savings account if you’re planning on needing it in 3 years or a brokerage if you’re thinking you will need it in 5+ years. You will save a ton on interest and it won’t negatively impact how much you’ve put away.  

Answer 3

Considering the debt is likely more than ~2% interest, I would pay off the debt and put the planned payments, raises, taxes and OT into the HY as they come in.  

Answer 4

Definitely pay off the debt. That is likely your highest interest rate. Throw everything in a spreadsheet and just see how much more money you will have with the debt paid off first.  

Answer 5

Cory, I'm actually in a similar spot myself. I've made sure the debt is paid because I have a low tolerance for debt and now every extra cent I make goes towards my house fund. The interest of even personal loans is high. Why give that away?  

Answer 6

"We are not moving until the debt is paid one way or the other. " The HY savings account is likely less interest than the revolving debt. Pay off the debt and start putting your OT, raises, tax returns etc into a down payment fund.  

Answer 7

Personally I would pay down ONLY my interest over 5/6% debt put the rest of the money away so you hit your goals.  

Comments

@barghest2002 there are a few items in there with teaser/transfer rates that are at zero for the next 12ish months. But it all needs to go at some point lol

Answer 8

Is the home almost paid off? Does it have stable rental? If so, i would suggest, ask for a HELOC to get some money out for your next house down payment, and keep renting the house. In the long run, with home value appreciation, principal balance going down, you guys networth will keep going up. When you are selling you also have to consider in average 7% of the selling price to go on fees for the real estate agents, closing costs, fixes, etc. Why not keep the home as a rental? There are a lot of tax benefits with that.  

Comments

@drinking the house is a holdover from my wife’s previous (abusive) marriage and the emotional/psychological baggage of the home isn’t worth keeping. We have a buyer and are selling through a lawyer without a realtor so we’ll be netting as much as possible. We’re still holding my rental and I’m not opposed to getting further into landlording but it’s time for the house to go.  

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@medulla wow. I see now. Good luck on your sale.  

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Could you roll the proceeds into a new investment property to take advantage of a 1031 exchange?  

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@uuge6 that is an excellent idea

Answer 9

Doesn't it depend on the interest your paying on the debt VS the interest you stand to gain

Comments

Not if you factor in risk. The current plan to pay down the debt factors in lots of things that aren’t guaranteed. Interest on the debt you owe is a sure thing and it is more than the <2% that you’d get from a high yield savings account. Remove risk from the equation and the variance around a successful outcome drops a ton.  

Answer 10

Pay off the debt and put the $800 a month into a HY savings.