New member needs advice and credit detox

[jtriplett]

Hey everyone. 

This is going to be the year that my financial situation changes.  I've been doing a lot of reading and investing over the last year or two, but ultimately still not changing my habits and my habits are the ones that are killing me right now.  Last year I started using YNAB, and it has literally changed my life for the better but I'm not out of the tunnel yet.

Let's get the Bad out first. 
Debt from worst to best:
Chase Card at 0%: 8600
BofA Card at 0%: 5000
BofA Card #2 at 0%: 7000
Car Loan: $5000
Student Loans: $41,000

For investments:
$10k in a Roth (unfortunately I can't contribute anymore because of income, haven't been able to for several years, and I took some out to buy the houses below)
3 Rental houses bought in 2013 (100k, 50k, 45k), all have mortgages (72, 37, 27), all cash flow positive, but I'm using the cash flow to pay down the mortgages faster.  I've spent most of my investing time doing these houses.  The returns have been great, honestly, especially when I look at equity build in the houses from the fast mortgage payoff. 

So here's my income situation, and probably where a few of you groan, and go STFU.
This year I'll make about 220k/year in a 1099, with about $24k of expenses to get that.  Last year I made 130k in a W2.  I've been eating away at the debt over the last 6 months with decent payments, but not fast enough. I've paid down about $10k of CC debt in the last year.

I have some options, because I'm paid as a 1099, into a business I own I can do a bunch of things:
- Pay myself as much as possible to pay off the debt and buy several more houses.
- Maximize my 401k contribution this year to the tune of about 50k ish, pay off my debt, but only buy one house near the end of the year.

I was looking at YNAB and planning for this upcoming year, I *think* I can get my monthly expenses down to about $3k/month.  Living in Berkeley, CA, life isn't cheap but it's cheaper than San Francisco!  I'm single with no kids, that helps, and my business pays my rent.  But I know that I have some bad spending habits.

Just as a caveat, I'm not looking for advice on whether Real Estate is a risky business or not. 

So one of the things I'm trying to figure out here, is that 401k is tax deferred, meaning I'm just going to pay taxes on any thing I get from the 401k eventually.  It seems like it's not a very efficient strategy in the long run.  Although at a marginal 40% tax rate when all is said and done, the difference between contributing 4k/month into a 401k versus 2.4k/month in Real estate after taxes might make a big difference over the long haul. 

Ok after writing all of this.  It inspired me to run the numbers

   Net pay after expenses per month
Full pay    $5,682.47
with 401k    $3,190.28

That's the result of a pretty big excel sheet...

payoff of cc debt
in months     total net over year
3.54      $68,189.59
6.31      $38,283.37

So it comes down to putting 50k away in a 401k in exchange for 30k income to put toward debt.

All assuming I can keep my cost of living down.  I really do want a new motorcycle though (that's how I get to work), and no the commute doesn't have a bus/train option.

[M from Loveland]

You stated that your debt is from worst to best:

Chase Card at 0%: 8600
BofA Card at 0%: 5000
BofA Card #2 at 0%: 7000
Car Loan: $5000
Student Loans: $41,000

Are the car loan and student loans also 0% interest?

[dandarc]

When does the 0% expire on CC's?

Minor point, but the following simply isn't true:

$10k in a Roth (unfortunately I can't contribute anymore because of income, haven't been able to for several years, and I took some out to buy the houses below)

Search Backdoor Roth IRA on the how-to of this.  I don't see a traditional IRA listed, so you're in good position if you want to contribute to a Roth IRA.

[jtriplett]

0%'s expire on the CCs
Chase: 3k of it in April15, 5k may 2016 (newer refinance to pay off some expiring)
BofAs: mixed between Aug15, Sep15, and Mar 16

I guess I should say best to worse emotionally, not necessarily financially, and also credit score wise.  The car and student loans are all around 5%, so it's still cheap money.  The CC bills definitely "feel" the worst.    Yet so damn tempting at 0% interest and 2% fee

[jtriplett]

Backdoor IRA... Wow never knew about that.  I think I'll use that this year.  Because Roth's are cool. 

[SaintM]

What are you using the credit card transfers to pay? Mortgages, car, or other cards?

[jtriplett]

They are all legacy from over spending, I leveraged a lot of 0% offers in 2011 to buy stocks.  I did actually really really well, and its partly why I own the investment houses, but I also overspend sometimes to buy stuff I want.  I tried to start a MLM business in 2012 that cost a lot but gave me very very little return.  I learned my lesson on that one.  And 2013/2014 they have just been sitting there because I haven't really wanted to deal with them and I could just rollover the 0%. 

So now it's gotten to the pain point and I'm finally devoted to getting rid of them.  A lot of that was because I just wasn't at all conscious about my spending until I got YNAB last year. 

[SaintM]

My suggestion would be to use the positive cash flow from the rentals to knock out your cc and other personal debt. Once that is gone, use your cash flow for more investing (paper assets or real estate).

I love real estate investing. Each of my houses is a self contained profitable business.  Their debt is a tool to make me money.  The interest is also fully deductible, not subject to a standard deduction, so I'm not in a big hurry to pay it off.

[deborah]

If I were you I'd have a moratorium this year on investment houses, and pay down all the debts - using with the excess from the rents as well. I would also put money into my 401k, Roth or whatever you decide. You've had those debts for a while, and getting rid of them will allow you to concentrate on building net worth. You are just about there, and a solid year of knocking off the debt should finish it. If you do all this before the end of the year, buy another investment place, or whatever else you decide.

Removing the debts will help ensure you don't get back into that position again, because you will need to start.

[jtriplett]

The more I read on MMM and some of the other links I've seen the more two priorities are bubbling up for this year:

1) Maxing 401k
2) removing debt.

Investing completely aside for one more year.  With those two things accomplished this year would put me on seriously solid financial footing for 2016 and beyond into the crash of sometime in '18-20