debt payment

[adesai86]

Hi, I'm 23 year old with a good steady income and planning on buying a house next year in 2011. However, currently I have 2 small student loans of about 5000 each and a credit card debt of about 7000. Shortly I will be receiving decant amount of money from my tax return and my quarterly bonus from job. I'm not sure if I should save up that money or try to pay off my debt and which one (credit card or loans). Please Help. Thanks.

[snshijuptr]

Pay down your credit card debt. It will 1) save you money in the long term, 2) improve your credit score, and 3) give you piece of mind.

[disneysteve]

I agree with snshijuptr but would ask some additional questions.

You have $17,000 in debt. How much do you have in savings? How are you planning on buying the house? You need to pay off your debt, have a 3-6 month emergency fund and save up a 20% down payment. Can you do all that within the next year? If not, I'd say you aren't ready to buy a house.

[EconoMutt]

I'd definitely pay off those credit cards before buying a house.
New home buyers think of house expenses in terms of the principal/interest payment.
That can be the cheapest part of owning. You have to add furnishing, window treatments, etc.
Up keep, property taxes and a larger utility bill will also add to your costs.

[snshijuptr]

Building on EconoMutt, I made a spreadsheet a while back when we were looking to buy. Beyond the startup cost of furnishings, and the ongoing costs of upkeep, property taxes and larger utilities there is:
Lost interest on your deposit
Increased insurance
Homeowner's association fees
moving costs

Make sure you budget for these. I know that buying a home is an "American Dream", but run the numbers both with your savings and your future expenses and make sure you know how much house would "earn" you money above the interest paid out.

[1milliondollarchallenge]

I would probably pay most of it off the debt but keep a little for savings, depending on how much savings you have. Reason being you will save interest on the debt by paying it down, and you want a little buffer in case anything happens you do not want to put it on the card then go into a debt spiral.

[money blogger]

Pay off the CC debt. Think about it...what kind of rate of return could you expect saving your money? 2,3 maybe 4%. If you pay off your CC debt then that is an instant rate of return of at least 18% or so.

Finance to me is all about rate of return. After all, that is what grows your money.

Just a few thoughts,

Brandon

[jpg7n16]

Originally Posted by disneysteve

I agree with snshijuptr but would ask some additional questions.

You have $17,000 in debt. How much do you have in savings? How are you planning on buying the house? You need to pay off your debt, have a 3-6 month emergency fund and save up a 20% down payment. Can you do all that within the next year? If not, I'd say you aren't ready to buy a house.