Home Loan

[PAZach]

Wow this site is excellent. I've been lurking around reading various posts and following advice to pay down my debt, which has help me pay off several credit cards. I've recently graduated from grad school and have been working for 6 months. I'm interested in buying a home and I'm looking to improve my credit score in three months. Here' my situation

Over the last several years I have accumulated several credit cards and debts from school. I need some advice on how to pay on them in the next couple of months to raise my score as fast as possible so I could purchase a home and stop renting. Right now I'm renting a home for $1150 a month so I'm already basically paying a mortgage. I have a great job so I won't have any problem affording the home it's getting the loan that I'm concerned with. My current credit score is approx. 640

CC 1: $5000 limit.....balance is $4500.... 0%APR
CC 2: $1000 limit.....balance is $500....19% APR
CC 3: $5000 limit.....balance is $3500....0%APR promo purchase
CC 4: $4000 limit.....balance is $2500...0% APR promo purchase


Now obviously to save the most money I would want to pay off the high interest rate first. My question is should I pay on one's with the higher balance first to allow more space between the balance and credit limit. I have approx $1500 in savings and I have about a $1000 a month that I can use to pay on credit cards while still having money to pay other monthly bills.

Any advice would be greatly appreciated.

[sweeps]

CC 2 looks like an obvious choice for a payoff, but when do the 0% offers expire on the others?

[PAZach]

All promo card have a year on them.

[Diolla]

From what I am reading you have $11k in debt, $1500 in the bank, $1000 to throw at the debt each month and want to raise your credit score and buy a house in 3 months?

What were you planning to do for a down payment?

You want to avoid maxing out any of the cc's, you want to get your credit to debt ratio down to 30% and you need to never be late in paying.

I think you should rethink your time frame and save more/pay off more. There are alot of hidden costs with buying a house even if you are already renting one.

JMHO but I am feeling a little grumpy today.

[project15]

I just graduated 6 months ago as well. I would recommend holding off on that house until you get the 11k under control and have an emergency fund AND have some money to throw at all the fees of the house. Even if you go no money down on the house, you're still going to have to pay cash up front. With no money down, you're going to be incurring PMI which is just like throwing money away. I think you need to do more research on this house thing before you decide you just want to live in one since you're paying about as much as a mortgage as you are in rent.

[disneysteve]

The only problem I see is your timeline. You owe 11K and can afford to pay 1K/month, so in 11 months you will be debt free. THEN you can start saving for a downpayment which ideally should be 20% of the purchase price. As much as you might dislike renting, it doesn't make sense to rush into a purchase without enough money upfront.

Don't forget that there is a lot more to buying a house than the mortgage payment. There is taxes, insurance, maintenance, lawn care, snow removal, furniture, appliances, etc. All things that are probably covered by your rent currently. Becoming a homeowner is an expensive proposition. Don't rush into it.

[PAZach]

Ok so it sounds like three months might be pushing it a bit. How would you recommend I attack this debt. Which card first and how much?

[sweeps]

2, 4, 3, 1

[kristinecfp]

I agree with Sweeps. Pay off the high interest one first, then attack the ones with the promo rate, starting with highest balance first.

Also agree with others who recommend you wait on home purchase until you have down payment, emergency fund, etc. In addition to all the things disneysteve mentioned, there are also a lot of home improvements, repairs, etc. that you'll have that you do not have with a rental. A house is much more than the mortgage payment.

[LuxLiving]

2, 1, 4, 3 - why do I suddenly feel like Monica on Friends???

[disneysteve]

Originally Posted by PAZach

How would you recommend I attack this debt. Which card first and how much?

2. Highest interest rate. Get rid of that first.

1. Highest balance relative to limit.

3. Next highest balance relative to limit.

4. Next highest balance relative to limit.

In the future, ideally, you should always pay your bills in full each month. If, however, there is some emergency and you need to carry a balance, it shouldn't exceed 30% of your available credit line.

[sweeps]

Given that 3 of the cards are 0%, he should pay the ones with the lowest balance first. That eliminates minimum payments faster, and frees up cards faster in case an emergency comes up.

Also the OP implies that card #1 is a permanent 0% whereas #3 and #4 are temporarily 0%. Another reason to get rid of those first.

[humandraydel]

Sweeps brings up a good point. You needs to double check the terms of the promotion. Some cards are 0% for 12 months but if they aren't paid off by that time, they'll back charge all the interest. If that's the case for those cards, you'd definitely want to pay them off (after the card with 19%).

[disneysteve]

You make a good point, Sweeps. Though ultimately, I think this is an academic discussion if all 4 cards will be paid off within a years time. I don't think it will matter that much in the grand scheme of things.

[Ima saver]

I agree with steve. I also would put off purchasing a home until completely free of credit card debt.

[creditcardfree]

I agree with sweeps on the order of payoff. And agree with everyone else that the home purchase needs to be delayed. Although you can get into a home without or a small downpayment, I will admit that I wish I had waited longer to have a full downpayment on a home. The emergency fund is crucial as well.

Since you have $1k per month to put toward these, your goal will be reached rather quickly. You may also find that you have more than that to put towards these if you look at your other household expenses. Could you move to a less expensive apartment to free up some more cash?

[PAZach]

Originally Posted by creditcardfree

Could you move to a less expensive apartment to free up some more cash?

I had considered doing that as well.

[PAZach]

Just found out today I'm going to get $5600 back in taxes this year. Now I'm sure this changes things a bit. Should I use all of my refund to pay down debt, put some in savings for down payment, etc? Would like to hear the expert opnion.

[tinapbeana]

i'd split between debt, a house fund, and an EF. that way you'd have a good head start on all 3

[disneysteve]

Originally Posted by PAZach

Just found out today I'm going to get $5600 back in taxes this year. Now I'm sure this changes things a bit. Should I use all of my refund to pay down debt, put some in savings for down payment, etc? Would like to hear the expert opnion.

If you don't have an EF, I'd put some toward that to prevent future CC usage. Then I'd put the rest toward the debt. If you can put $3,000 in an EF and $5,600 toward the debt, and continue to pay $1,000/month on the CCs, you will be debt free in 6 months.