What do you think of this idea?? - Posted by Bob

Posted by Stan on September 01, 2004 at 10:00:53:

Yesterday I was having a bad day (happens occasionally) and took the responses in a wrong way. I still stand by the message I wrote, just not the tact in which I wrote it. For that, I appologize.

What do you think of this idea?? - Posted by Bob

Posted by Bob on August 31, 2004 at 08:11:01:

Can anybody tell me if there?s something I?m missing here, because I think I have a pretty good idea?..

I currently have $23k in credit card debt on 3 cards, each with an $8000 limit?..not good, I know. The debt is from college expenses and funding the down payment on a rental property, but this is beside the point. The minimum mo. Payments on these cards totals $480. In November, I will be refinancing a owner occupied 3-unit, to pull out equity that I created through improvements. I hope to pull out around $20k-$25k.

Here is my plan, I want to use that ?cash out? to pay off these cc?s. The monthly payment on the property will increase around $180 due to this cash out. But, since I own another property, I will still be able to live for free. I will now have $480 extra per month and an available credit line of $24k, which I think I can get raised once I pay these off. I?d like to get a cash advance on these cards to buy more properties. The interest rate on the cash advance does not exceed 12% on any card. I want to use this to either make all cash offers on properties or to buy and rehab foreclosures. Without getting into home prices and #?s in my area (which are rather low), I?ll just say that this $24k will be adequate.

My exit strategy would then be to sell wholesale or to refi and rent and pay off the new cc balance. Then, start the whole process over.

Does anybody see any great errors in my thought process?

why not sell? - Posted by ken in sc

Posted by ken in sc on September 01, 2004 at 06:54:33:

If you sell rather than refi, you can payoff the credit card debt and have cash in your pocket (assuming the cashout refi was at an 80% LTV). Thus, you will have no crdit catd debt now, cash to invest, and credit cards that could be used in a crunch, rather than as a way to do business.

I agree with E Eka, credit card debt is bad and I would not rely on them as a business tool. If you remian debt free and do a few deals, you will soon have a real credit line at a bank.


Re: What do you think of this idea?? - Posted by DP (ON)

Posted by DP (ON) on August 31, 2004 at 22:42:58:

If the interest rate and cash advance fees are less than you’d pay a HML then you’ll be ahead of the game compared to most of the investors on this site.

You should of course always be on the lookout for cheaper alternatives. Perhaps a working line of credit, or even a personal line of credit that has no fees and a lower interest rate?

Perhaps after you’ve used your cards to do a deal or two and quickly paid them off, you should approach your bank, explain what you’re doing, and see what they can offer as a cheaper replacement.

Regardless of what you decide to do, I agree with you completely that credit cards are an excellent tool when used properly. For example, credit cards offer you 30 days of free money (non-cash advance). And with some of the offers out there, anyone with the means to qualify, would be a fool not to take advantage of them.

Re: What do you think of this idea?? - Posted by Potash

Posted by Potash on August 31, 2004 at 12:30:12:

Unfortuantely when you ask a question like this, you get a lot of responses from people that think they are Suzi Orman. $24,000 in credit card debt is not very much if you have a reasonable rate (

I have a friend… - Posted by David Alexander

Posted by David Alexander on August 31, 2004 at 11:39:52:

very successful I might add… who used credit cards…

And is very successful at it…

He buys notes… has like almost 200k in credit cards… when it’s time to buy a note… he jacks up the balances…

Now likewise he makes very good yield purchases… and points all the access cashflow at the highest rate cards to pay them off first…

When it’s payed down… he does it again… He’s remained when alot of investors have been struggling… Investing is methodical…

You would need to make sure you can always liquidate the property to payoff the credit card…

Retire the debt as quickly as possible…

And make sure your are a good manager of money…

Usually people fit into two categories… the guys that can create the kaos… make the money… the Entreprenurial types…

The management types that can manage investments cautiously and wisely…

Both can be learned…

But, check your personality at the door…

If your the entreprenurial type… and not able to recognize the skills you lack for management of money… and don’t seek those skills quickly…

Then this is the road to failure…

Bottom line…

You have to be a good money manager to do this…

You already know if you are or aren’t…

David Alexander

Why Did You Ask?? - Posted by Randy (SD)

Posted by Randy (SD) on August 31, 2004 at 10:56:38:

You OBVIOUSLY don?t want any one to tell you your plan is flawed! You asked the question, received several opinions and argued with every one who expressed a different opinion, so go for it.

Re: What do you think of this idea?? - Posted by E.Eka

Posted by E.Eka on August 31, 2004 at 09:03:03:

Credit card debt is WAY worse than GOOD debt, debt used to build wealth. Homes appreciate, renters pay your mortgage and you can live free. Credit card debt, does nothing but lower your credit score, force you to pay ridiculous amounts of interest and keep you feeling dejected. Not to mention the change in interest rate.


Re: What do you think of this idea?? - Posted by Randy (SD)

Posted by Randy (SD) on August 31, 2004 at 08:51:55:

I agree with the first part of your plan, payoff your credit cards excellent idea. However I would not suggest using those credit cards for cash advances but rather get a HELOC on the other property. The reason I suggest this is if you were to take a $24,000 cash advance on your credit cards your FICO scores would plummet because you have maxed out your available credit, where a HELOC would not. Additionally your card issuers may view the cash advance as a warning sign of financial trouble and jack your interest rate to 23%. You post the interest rate on the cash agreements does not exceed 12% on any card, however if the CC issuer feels you’re in financial trouble… all bets are off.

IT’S A MIRACLE!!! - Posted by Joe

Posted by Joe on September 01, 2004 at 19:56:33:


I knew you had it in you!!!

You have finally posted a helpful comment!!!

Can the solution to world hunger be far behind?

(LOL! Tongue in cheek. Good answer.)

Re: Why Did You Ask?? - Posted by Bob

Posted by Bob on August 31, 2004 at 11:08:55:

No, I argued with incorrect information.
You told me to pay off the cards and get a HELOC. I apologize that I wasn’t clear, but there isn’t that much equity in the property.

You also said that the cc companies will increase my interest rate because I take out a cash advance. I’m sorry, Randy, but you are wrong on this one.

The other point I agrued with, on E. Eka’s post, was that credit card debt is just BAD. That’s what she said. I merely stated that when controlled it helps your score. Once I pay off the cards, I will only be advancing 1/2 the limit and paying them off within 6 months, maximum.

I was looking for some suggestions with correct information at the least. I feel like I asked a question such as, “I’d like to buy a new BMW, any suggestions?” And I got responses such as, “Well, BMW’s are bad because they all run on hydrogen and don’t have air conditioning.”

Re: What do you think of this idea?? - Posted by Bob

Posted by Bob on August 31, 2004 at 09:48:05:

E. Eka,
I have to disagree. Credit card debt, when used correctly raises your score, i.e, when kept at a low balance to limit ratio and paid on time. I agree that it is not as good as mortgage debt, because it’s not a write off. But, thats why I want to pay off my cards now with a mortgage. The new debt that will be incurred on the cards will only be for short time periods, i.e., during the rehab or refinance periods for the property.

I’m not sure about you but, I don’t pay ridiculous amt’s of interest. None of my current purchase and balance holding rates exceed 5%. How do I do this? By asking. I always pay on time and every six months I threaten to transfer my balance to another charge card and magically they lower my interest rate.

Re: What do you think of this idea?? - Posted by Bob

Posted by Bob on August 31, 2004 at 09:43:20:

THere is not enough equity in the property to get a HELOC and pay off the cards. It has to be one or the other. I don’t think I would max out all the cards at once with cash advances maybe like 50% of each. And, it would only be for a short time, like 6 months.

I would have to disagree with the CC issuer jacking the rate up just because I took a cash advance. If I don’t pay, yes, but they have no grounds to in any other case. This is why people have limits on cc’s, so they don’t exceed what the company feels would be safe for the borrower to handle.

Re: What do you think of this idea?? - Posted by rehabber

Posted by rehabber on August 31, 2004 at 09:42:28:

Wait, wait just one minute…
Alot of the ‘good’ gurus, like Russ Whitney :slight_smile: , have
their students raise the credit limit on their cards,
then max these cards out with cash advances - right
there, on the phone, while in the guru’s classroom.
Then the guru praises them for a job ‘well done’,
saying something like ‘this is good debt since you’re
using it for real estate’.

Are you saying these guru’s are wrong and are being
less than honest? :slight_smile:

Re: IT’S A MIRACLE!!! - Posted by Potash

Posted by Potash on September 01, 2004 at 22:10:09:

I responded to that question primarily because I wanted to make a comment on the freakishly bright color and large size of Suzi Orman’s teeth. But I forgot. I bet she glows in the dark.

Re: Why Did You Ask?? - Posted by E.Eka

Posted by E.Eka on August 31, 2004 at 11:22:56:

I’m a man. E is my first name and my last name is EKA. also you never stated in your intial post that credit is good or whatever. If you recall, I compared credit card to mortgage debt. There’s no comparison. All the stuff about 6 months, and 1/2 the limit came after.
Lastly, you want free advice from experienced investors yet you 1. question the answers you receive, and 2. you’re getting free advice.
I’m not saying, pay money or homage or whatever, but you have to admit that the tone of your email came off in a certain way that others reacted the way they did.

You’re on here asking opinions. I offered mine. Credit card debt is bad. Even if used to acquire real estate, unless it’s cashed out early. In my OPINION there are very few ancillary benefits to using credit cards. That’s just my opinion.

Re: What do you think of this idea?? - Posted by E.Eka

Posted by E.Eka on August 31, 2004 at 10:03:44:

Now you’re splitting hairs. You’re right, most things managed well usually work out, but according to your example, I know mortgage debt is usually ALWAYS better than credit card debt. No if ands or buts. You have about $23K in credit card debt, on 3 cards where they are about maxed. Show me how that’s using credit cards correctly? Granted, you used some of the debt to finance real estate, which I’ve done at times, but I usually and promptly pay off the cards as the interest on a HELOC or other line of credit secured by real property is ALWAYS lower than the “teaser” rate a credit card can give me.

The deduction for mortgage interest (if personal residence) or as a business expense is one pro, but credit cards ALWAYS never appreciate, the interest associated with them are usually higher than most associated with real property.

It’s funny, you ask for suggestions/advice but then you proceed to second guess the advice you’re given.

Re: What do you think of this idea?? - Posted by Stan

Posted by Stan on August 31, 2004 at 13:30:36:

I have to disagree with you Bob. My wife has a credit card with a $5,000 limit on it. She has kept no more than $1,500 on it for the last 2 years. Never missed a payment. Last year, she opened up an American Express Sky Miles card for the benifit of earning Delta Skymiles. This was the only new account for her in the last 3 years. Well, 3 months later she gets a notice from the credit card company with the $5k limit stating that through recent checks with the credit beureaus(sp) it was found that her credit situation had changed and they were going to up her percent from 5.9 to 18.9 for her being a higher risk.

We pulled her credit and her credit scores were 689, 719,735. No lates. No charge offs. Nothing short of excellent credit. I called the CC company and they claimed that this was normal operating procedure (which they have the right to do). Well, I told them that I was not going to be a party to an and closed the account. To make a long story short, your rate that the credit card company set is at their descretion. If they want to raise it, all they have to do is give you notice.

Re: What do you think of this idea?? - Posted by Randy (SD)

Posted by Randy (SD) on August 31, 2004 at 10:57:52:

Don?t take my word for it, check your FICO scores ? then MAX out just one of your CC then (after the bill cycle) check your scores again. Don?t be surprised at 30+ point drop. I don?t know about your supposed guru?s - but I do know about credit scoring, anytime your balance exceeds your available credit (50% debt/Limit) you?re a higher risk.

Re: IT’S A MIRACLE!!! - Posted by Joe

Posted by Joe on September 02, 2004 at 24:11:43:

LOL. She’s a freekish drone.