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I have about 20,000 of credit card debt and 6500 in cash. I make 70 k per year but my wife is going to school so my debt has been stagnant. We are thinking of using that cash as a down payment on a house. Shall we buy a house right now because we are getting a good deal for the house low prices and low interest rates or use that money to pay off the credit cards?
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When you're already in so much consumer debt, the worst thing you can do is acquire more debt, regardless of how low housing costs are.
Get your spending under control first and foremost, pay off your credit cards, and then save for a 20% down payment. Anything else will probably set you on the path to eventual bankruptcy. -
pay off that 20k cc debt first
have enough EF
contribute what you must to retirement
save 20% for down payment
and then come to this board and ask that question
doenst matter how low is hosing prices, there is no point in thinking about it when you don't have money.Comment
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bkraider, good on you & DW for saving $6,500. I hope you'll stay with SA as you work your way through the process to reduce debt, save for your house DP and make your money work for you. Since there is no evidence that house prices will increase soon or that interest rates will increase, the urgency to buy is gone. There is a lot of evidence that there will be a third tranche of foreclosures, short sales, bank owned real estate[ROE], deficiency sales, judgements, auctions and more flopping.
Meanwhile, I suggest you carefully look at your last few credit card [CC] statements. Write down the amount you've been charged in interest and fees. If you multiply those sums by 12, you get a rough idea of how much money you gifted the bank 2011. CCs are great tools, give points, are convenient and will help you dispute problems...so long as you pay the balance by the due date every month. If you've charged meals [restaurants] and gas for your car, you are still paying for long gone items.Comment
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You have $20,000 in CC debt and you're asking if you should borrow to get into a house? Are you nuts?!
There are two ways people have troubles keeping up with a mortgage:
1) They have too much debt
2) They do not have a buffer between themselves and reality
You have too much debt. You cannot argue with me on that.
You do not have a buffer between you and reality. Reality is this: you will have to budget approximately 2% of your houses value, per year, for maintenance costs. Your house will require maintenance and you need money to do that.
Do yourself a favor and rent for now. Renting is a great thing to do when you are not financially ready to take on a mortgage. I know some people say that renting is like throwing away money.
I want to make you understand something... Paying on a mortgage is mechanically the same as "renting to own." When you have a mortgage, you do not own the house. The bank does and you are paying the bank rent.Check out my new website at www.payczech.com !Comment
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Do not purchase a house. You need to get that debt paid off. How much are you currently paying towards your credit card? What is the interest rate? Pay as much as you comfortably can to that card, then save as much as you can for your future home. It is best to save enough so that you can put 20% down when you purchase your house, but it isn't necessary (you will have to pay PMI which is a waste). Also, make sure you save enough so that you can pay your bills for at least 6 months. Banks will be trickling out their foreclosed homes for years so that they can get the best price they can for them, so don't rush.Comment
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As many people in this forum said, you really should pay off the credit card debt first (Bad debt). I am guessing credit card rate is at least 12 - 15%. If not dealing with this soon, interest will just pile up. If this is some other low interest loan like student loan or car loan, then my answer may be different.
I don't know where you live right now but my prediction is real estate market will come down at least 20 - 30% in nationwide. I saw histrical data showing the ratio between income and average median home price. Basically, what they did is median house price divided by income. Since 1950s (1960s, 1970s, 1980s by decade), ratio is around 1.9 - 2.1so lets say 2. However, year 2010's ratio is 3.2, even with housing bubble popped on 2008. Therefore, I expect most of housing market (I think California, Nevada real estate market will hit the hardest) in nationwide will decline around 30%.
With credit card debt payment plus this, I would not recommend you to buy the house at this time. You can wait while paying off the credit card debt.
That's my take. good luck!
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I hope that wasn't really a serious question. I hope.Comment
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I disagree. If the new house is in good condition and needs little work and the monthly payments will be lower than your rent, then maybe it will work to your advantage. It will free up some money to pay down your CC debt. If the monthly payments will be higher than your rent, then you are making a mistake.
$20,000 is way too much for CC debt, and that is why most of the people on this board advise you not to buy the house. I agree with this, but we are not seeing the bigger picture, such as your budget.Comment
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But monthly payments arent' the only expense of owning a house. Bottom line: if you can't adjust your spending to be able to save while you're renting, you certainly won't do it once you own.Originally posted by emanon1501 View PostComment
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"if you can't adjust your spending to be able to save while you're renting, you certainly won't do it once you own."
VERY well stated Riverwed.....Comment
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