Let’s say you were strapped for cash when you got started as a real estate investor, and to get the cash for your down payments or your repairs, you used credit cards, or maybe you took out a personal loan or a home equity line of credit.
But the point is, now you have a mountain of debt, and you can’t seem to get your way out of it.
So, when it comes to debt there’s good debt and bad debt.
As a Real Estate Investor, say you have a 30-year 4% interest mortgage on a rental, but its cash flowing every month without you having to take money out of your pocket, that’s considered good debt. Simply because it’s producing cash flow. On the other hand, you have a few credit cards with high balances that you may have utilized for material for rehab even though it helped with the rental afterwards it’s considered bad debt because the credit cards aren’t producing any cash flow. So, anything you must dig into your pocket on the 1st of the month and pay is considered bad debt. These are the debts you should tackle first.
There’s a method called snowballing which simply means you start with your smallest balance.
Once you zero that out, you then take those payments and add it to the payments towards the next debt in line, by doing this your payments will begin to grow like a snowball rolling down a hill.
(Example)
If you were paying $100 towards the smallest debt add that $100 to the minimum payment to the next debt in line.
This does several things but most importantly it gives you little wins which are psychologically important and will keep you going forward. Write it down on paper make a chart and mark the wins off with a red marker or something that stands out. By seeing the marks, it gives you momentum.
As your knocking down the smaller cards, you must become and stay in stealth mode to not use the cards once you pay them off. The whole purpose of this exercise remember is to get you out from under the debt.
So, you must write down your wants and your needs. When the little guy dressed in red starts to tug on your ear and say you need that, count to ten analyze and take your time.
This little simple method has helped me tremendously.
So, the lineup period of the cards is smallest to largest and then unsecured against secured.
If you have a 30-year 4% mortgage that’s cash flowing, and you have a 12-15% credit card that’s not cash flowing the credit card payoff should win every time.
To sum this up Real Estate and Personal Finances really go hand in hand. If you haven’t looked into Infinite Banking which is a vehicle that allows you to bring back the interest that you’re currently paying out to other banks, you can click on the link below and request a free consultation to see if it’s a fit for you.
