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Personal Finances / Credit Cards and Consumer Debt
|Subject: Buy a house or pay off cards||Date: 4/21/1998 5:51 PM|
|Author: Sunnywiz||Number: 1214 of 309001|
I find myself in an interesting situation. I want to explain what that situation is, and maybe someone can tell me if I'm right or wrong.
I have a net income of $800/mo. (approx) (NEW JOB!)
I am $5000 in debt (approx) (cards+car loan. car loan is like 18% due to previous credit problems and age of car)
I want to buy a house rather than pay rent. Intend to sell the house in 4 years or so, when my gf and I get married. (Buy a bigger house then)
I have no liquid savings :(
If I pay off all my debt as quickly as I can, then build up my savings to the point that I can do an FHA+closing costs and get a house, I loose like a total of $300 in interest (that is, debt interest + credit savings combined). This would be in about 20 months. I could then purchase the house that I want.
On the other hand, if I pay off my debt at minimal rate, but build up my savings to the point where I can buy a house, I can buy the house in 16 months [or less, depending on the deal that is made]. Then, it would take me 5 months to get out of debt. Total interest lost: $1200.
It would seem better to go for the first plan, but I don't think it is.
The housing market here is booming about about 15% per year. The debt that I incur on the house translates into equity as the house appreciates in value, so that by buying it 1/3 a year sooner, then later selling the house at the same time, i supposedly can sell it for $2000 more than if I had waited that extra 4 months. [Assumption: Monthly compounding on the house. Maybe its only a yearly thing?]
In addition to that, by purchasing the house, i'm converting my fixed "rent" portion of my income into a "savings building" mortgage payment thing. It sort of gives me a bigger hammer with which to smash debt. I think. [not sure]
So, I'm going to pay minimum balance on my cards and attempt to save up to buy a house instead. It will go slower than I'd like ($565/mo after minimum monthlies are met rather than $800).
Any thoughts on this matter? Did I miss something? Am I making the best decision?
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