In need of some financial advice...credit card debt, mortgage?

[magnate]

A friend of mine and her husband are looking into getting a house next year when their rental lease ends (Jan 08). They plan on spending this year trying to get out of as much debt as possible. They have about $14K of unsecured debt. Her credit score is within the 650 range, his is way over 700.

They are in desperate need of some advice as to what they should do this year. They're both contributing to their company's 401K programs. Obviously, They need to focus on paying off their debt, but at the same time, they also need to save up for the house.

Her question now is which should they focus on?

She have about $30K in inheritance money that she can get which they will use as the down payment. And that raises a whole different issue about who will own the house, etc (just in case of divorce).

Any advice as to where they should navigate our finances this year will be very helpful. Thanks in advance!

[bjl584]

Do you have any info on their current incomes, ages, tolerance for risk, and what their price range is for their house?

[vishenda]

You can sit down with a debt management counsler, or a financial
planner.
Both can help you plan out what to do next, or decide how you want things done.

If you want to do it on your own, draw up a budget, pay off the low bills first, so you have a lower debt-income ratio, and then work on the bigger ones. The less debt you have, the better for buying a house.

Look for a home loan with low down, or no down. If your country has a 1st time homebuyers program, use it.

[greedy4chips]

Originally Posted by magnate

She have about $30K in inheritance money that she can get which they will use as the down payment. And that raises a whole different issue about who will own the house, etc (just in case of divorce).

Since they are married the $30k belongs to both and should be viewed as if they saved it together. In case of divorce, they will fight over the house and neither will get the $30k because the lawyers will take it to help settle their disagreements.

Pay down the debts as much as possible using whatever excess funds they can muster before adding to the down payment. Once they purchase a home they will most likely go into more debt if they are "normal" and want to buy furniture, decorate, update/upgrade items, etc.

[tinapbeana]

Originally Posted by greedy4chips

Since they are married the $30k belongs to both and should be viewed as if they saved it together. In case of divorce, they will fight over the house and neither will get the $30k because the lawyers will take it to help settle their disagreements.

this isn't necessarily true: some states (mine included) view inheritances to one spouse or the other as money belonging to only that particular spouse, it is not considered community property.

i live in SC, and if they can have their legal code posted online, i'm guessing most states do. try googling "STATE NAME legal code" and see if you can get more specific information from your state's legislature or codex.

[disneysteve]

How much will they be spending on the house? Is the 30K their entire downpayment? If so, I'd recommend spending no more than 150K so that they have a 20% downpayment.

What they should do this year is pay down debt. That will help raise their credit score and qualify them for a more attractive mortgage rate. Plus, it will ease the financial burden they will face when they buy the house.

Of course, they should be living well below their means and not spending any money that isn't necessary to meet basic needs. This is not the year for the big vacation or the new car or the plasma screen tv.