Meet RealEstateKid: $37,864.94 in (unsecured) debt

My name is RealEstateKid and I’m 27 living in NY. I believe I’ve made some very good choices along the way, but also some very bad ones. The bad decisions were not necessary one-time choices but bad choices which resulting in bad spending habits.

Good Choices

I came out of college with $0 debt thanks to attending a state school and good parents footing the bill. The understanding we had was that they would pay for me to go to a state school (~$12k/year with room & board) ,but I was on my own if I wanted to go for a private school (easily $25k/year, if not more). They were very much against me coming out of school with well over $100k in debt. So I graduated college with a job and making $56k/year. I was living at home and had ZERO debt. Any money I did spend on my 1 credit card was paid off promptly each month.

I began to like the idea of owning a rental property. I figured why pay a mortgage when someone else can pay it for me and I would still receive tax benefits. I began looking at properties and settled on two different areas in NY which would “be easy” to rent.

I purchased a 1 bedroom apartment about a year and a half after graduating college, just before I was 23 years old. I used childhood savings which was accumulated mainly by my parents investing the money I received as gifts when I was younger (christening, communion) into a mutual fund. This investment grew nicely over 20-something years and I was able to use this money to put 20% down to avoid PMI. After about 6 months of doing some work, I moved into the apartment with a friend living on the couch. The rental did not happen but I was living comfortably.

After a year I decided I still wanted a rental apartment. I used a HELOC on my first apartment to take out $10k for a 5% down payment on another apartment, in the same complex. This one was slightly nicer so I moved into it and rented out the 1st apartment. My accountant helped me to establish an S Corporation to run the rental through and it’s been pretty smooth running. I just had a new tenant move in July 1 with a year lease, this is the third year I’m renting it.

Bad Choices

While the above story above might sound like I’m doing well, I’ve made some very stupid decisions along the way.

When I took out the HELOC, I didn’t read the fine print carefully enough and failed to realize I would have to use the HELOC right away to pay off my car loan (~$20k). A year later I traded in the car for a lease of a newer model of the same Infiniti. My monthly car payment is ridiculously low for a luxury car (we all know my plan to pay the original $700 monthly payment towards my HELOC never happened). My HELOC loan was now $30k compared to the $10k I planned for, and I took on the additional car payment by getting the new car.

Not so much a bad decision, but a bad habit in general for me was gambling. I’ve always liked to gamble and enjoy trips to Atlantic City every fews months. I also began gambling online and paying for services that offered “picks of the day”. To fund this what soon became a daily habit, I took out $10k on a credit card that offered 0% for a year. I used a portion to furnish my new apartment and used the rest for gambling online. Thinking I would be able to win money easily I did not think twice about this. The service I had paid thousands for was working and I had won over $10k in my online account. Well as it always happens, I lost back all my winnings and my 0% credit card was going to reset. What to do? Well I got another offer for a 0% card so I quickly took advantage and transferred the balance and all was good. This new 0% card will reset its rate on July 31.

Somewhere along the way of gambling and spending too much, I’ve also taken out another credit card with $14k at 3.99% for the life of the loan.

In an attempt to prepare for the rate reset, I took out a $9500 loan on my 401k in February! I’m listing this as a bad deicision because even though it will help me to pay of my credit card before the rate resets, what happens if I lose my job and this loan is due within 60 days. This money has been in my savings account since then while I decide how to use it. Within the next couple of weeks I have a big decision on what to pay off. My $12k credit card at 15.99% or my 401k loan?

The Results

Sometime at the beginning of this year I realized I would not be able to afford my minimum payments once that credit card reset to 15.99%. This is when I took the 401k loan.

After everything I couldn’t tell you how much of the debt is from  gambling online and paying for “premium and how much is from living above my means. Here’s the totals on unsecured debt:

Credit card #1: $13,769.43 @ 3.99% for life of loan

Credit card #2: $12,437.26 @ 0% until the end of this month, then 15.99%

401K Loan: $8,743.25 (taken in payments of $49.95 from my paycheck every week.)

Using money from one of the “loans”, I’ve also paid off another credit card with a balance of ~$3000.

My next personal post will have more about my assets as well my secured debts to see how they compare and how I intend to pay them off with my current income. Hopefully I’ll get some advice on some of the choices I need to make in the next fews weeks.