Pay Debt or Save More for Home

[chikori]

Definitely pay off the debt first - especially on credit cards. I'm not sure what your situation is like - but I do have a pretty good credit (over 700), and I had one of my credit cards for almost 7 years. The APR on it is 22.24%. (Awfully high for "good" credit.) Let's say I have $1,000 on that card, with interest, I'm looking at $1,222.4 on my first year. Minimal payment is $15 a month, in 12 months, that's $180. At the end of the year, I owe the credit card company $1,042.4. And if I continue to do the same for the next year, I'm looking at a $1,094.22 debt... God forbids if I make a couple of late payments - the late fee runs from $29~$40.

Personally, I got a car and a laptop recently - if the situation allows, I would rather wait to finish paying these things off until I look for a new property. However - when I did my math, the monthly payment of the mortgage I'm planning on taking out - is just a little more than my monthly rent. Even though there's the property tax and association fee that's attached to this whole thing - but your own piece of property is a greater investment than renting a place. The rent over at where I live goes up every year - it had reached the point where it would be stupid for us to continue renting. I know the market is falling and the prices are going to drop, but I kind of have a feeling that the area I live in would not get hurt as badly as the rest of the country. In some way, I'm taking a pretty big chance. But I have almost nothing to lose if my rent = my mortgage.

[mpc0715]

Thank you all for the great feedback. I will have to show them to my husband.

We are banking my salary in an ING account for the down payment. My husband's salary is used towards bills. Any extra cash I transfer to the ING account. However, I have started to use the extra cash to pay off the credit cards. With the final credit card payment I have been requesting to close the account.

Do you think it is a good idea to close the account after the credit card have been paid off?

My credit report was in the 740's. I have to recheck it again. My husband was in the 620's, though I have taken responsibility of his bills so I'm sure it might have gone up a little.

Thank you all again for the great comments.

[tahiti]

Originally Posted by mpc0715

Thank you all for the great feedback. I will have to show them to my husband.

We are banking my salary in an ING account for the down payment. My husband's salary is used towards bills. Any extra cash I transfer to the ING account. However, I have started to use the extra cash to pay off the credit cards. With the final credit card payment I have been requesting to close the account.

Do you think it is a good idea to close the account after the credit card have been paid off?

My credit report was in the 740's. I have to recheck it again. My husband was in the 620's, though I have taken responsibility of his bills so I'm sure it might have gone up a little.

Thank you all again for the great comments.

my understanding is, if you must, you should close the "newest" cards first, as the length of time you have your credit (assuming it's good) is a positive. but remember, you could get dinged if you start closing accounts all over the place.

so really the question is, how many cards do you have? i don't think you want a whole lot, as there is the "potential debt" issue. however, you do want to have at least one or two, and to use them responsibly.

you should check your scores once every quarter at one of the 3 big reporters - that way you cycle through 12 months and stay within the "window" of being able to check your score once a year.

[ohsosavvy]

definitely pay off the debt
we just did so and it was the best decision we ever made!!!!!!!!!!!!!!!!!

as for closing cards, maybe store cards with high rates....
but major, prolly not till after they run your credit for the mortgages
if youve had the cards a long time.....they establish good credit worthiness and history.....

good luck

[sam23]

Originally Posted by mpc0715

Need some advice.

I want to pay off our all or majority of our debt (student loan, car payments, credit cards) before purchasing a house. My husband wants us to make minimum payments and save more for the house and purchase a home before the lease is up in March 2008. His mortgage lender friend agrees with my husband as well.

Should we pay the debt first and wait to buy a home? Should we save more money and move out before the lease is up? My concern is now it is a buyer's market. I'm afraid once we pay everything off it is a seller's market.

Let me know what you think.

I was in the same predicament a few years ago. I had school loan debt that I just consolidated into a lump sum with a fixed rate of 3.5%. The loan total was $16,000. I did some research on the internet looking at two different schools of thought from the "accountant" and the "financial advisor", regarding whether I should pay off that loan with savings.

Accountant

The accountant said to take out all your savings to pay off that 16k loan if you can afford it. Not only will you have saved tons of money on interest, but it brings about a great peace of mind. In other words, it will be done and over with and you won't have to be burdened with the debt, a monthly payment, or the worry.

Financial Advisor

The financial advisor got into the logistics of not empting out your savings and paying off the loan, but keeping the loan, paying as much as you could on it per month, and investing your savings hoping for a 5% return. It's very simple. The financial advisor is in the business of investing people's money. If I took that money and threw it at the loan, the financial advisor's business goes bye-bye.

I took the accountants advise and figured by paying off the loan of 16k in a lump sum, I was not only freeing myself of the debt and worry, but I figured out with compounding, I saved close to 5k in interest. I saved myself 5,000 dollars in the end. That loan also reminded me of the credit card debt I got myself into in college. That loan was not just for school, but also from credit cards. It had a negative stigma attached to it. The best move I ever made was paying off that loan in a lump sum. The next debt I 'll have will be a house. I learned my lesson.

[CuCullin]

Pay off the credit card debt. My understanding (though I don't have these, so it didn't apply, and I don't know for sure) student loans are accounted for differently, and don't have the same weight.

Personally, since I had a very large sum built up in retirement savings (started early, along with some lucky investments made for massive increases) allowed me to take an early disbursement and pay off all my debts - knowing my increased savings from debt interest outweighed the gains I've since made in the retirement account by far has allowed me to feel relieved that I've made the right decision.

After finishing off all my debts, in a matter of months I've secured the money needed for downpayment and all closing costs, as well as additional funds for future work on the house and a safety net for mortgage payments.

You are right - pay off your debts. You'll thank yourself when you get paychecks that don't go to anyone except you.

[Diane Giam]

Originally Posted by TimtheGuy

Yes, contrary to the wonderful media in this country...100% loans are alive and running strong (loans amount under $417k)!!

That's so true. A friend of mine that is a Realtor from Century 21 in NJ, Just was telling me about a couple that has a 100% mortgage on a Condo. She said their accountant said it would be a good write off. I so doubt that because combined they only had a $120,000 in income. That is not much if your mortgage is over $2000 a month. This is something I would never contemplate doing.

Diane

[CuCullin]

While in a last minute comparison of mortgage options today, the 100% mortgage came up - yup, being offered, but not by the major banks as I've seen it. Real estate companies who have financial departments seem to offer it the most.

(PS: For a reality check, $120,000 in income, even for two people, doesn't qualify for the word "only". Even though the NJ average is higher than the national average, thats still above average.)