Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
I'm in need of sound advice. I will soon come upon approximately 47K as a result of my wife buying me out of the equity of our house (we have separated and in the process of divorcing). Rents in our area (Washington DC) are extremely high, if not higher than a mortgage payment, so I've thought of using that money to buy another home, albeit much smaller. However, I also have in excess of 25K in credit card debt and I would like to pay this off or at least bring the debt to a more controlable level. My question is: Which should be my priority, the purchase of a home or pay off of the credit cards? I would love to pay off my credit cards altogether, but I may be left with too little to qualify for the purchase of the home. I should mention that I would like to buy close to work to save on commuting expenses (which are very expensive in the area) but prices in that area are a little higher.

Jungletiger
Print the post Back To Top
No. of Recommendations: 0
I'm in need of sound advice. I will soon come upon approximately 47K as a result of my wife buying me out of the equity of our house (we have separated and in the process of divorcing). Rents in our area (Washington DC) are extremely high, if not higher than a mortgage payment, so I've thought of using that money to buy another home, albeit much smaller. However, I also have in excess of 25K in credit card debt and I would like to pay this off or at least bring the debt to a more controlable level. My question is: Which should be my priority, the purchase of a home or pay off of the credit cards? I would love to pay off my credit cards altogether, but I may be left with too little to qualify for the purchase of the home. I should mention that I would like to buy close to work to save on commuting expenses (which are very expensive in the area) but prices in that area are a little higher.

Greetings jungletiger,

Welcome to the Motley Fool!!

In my opinion, it would be to your advantage to get those cards under control. In fact, when you apply for the mortgage, the bank may require that the cards be paid as a contingency to the approval of the loan. I'm not sure if they will, but it is a possibility. Even if you have to pay more in mortgage interest to compensate for the card pay-off, its far less than the finance charge that the card companies charge...and it's a tax write-off, to boot!

You can get some excellent information about paying down the cards by reading through our Get out of Debt Feature, located at:

http://www.fool.com/credit/credit.htm?ref=PFinAg

I would also recommend you visit our Home Feature, located at:
http://www.fool.com/homecenter/homecenter.htm?ref=LN to get great information pertaining to purchasing and financing a home.

Both sites have dedicated discussion boards where you can post questions, but feel free to post follow ups here if you like.

Good luck to you, and Fool on!

Karen Kosoy
TMF Karen

Print the post Back To Top
No. of Recommendations: 0
The other place to post is the Consumer Credit board. That board has been very helpful to a lot of people in terms of discussing snowball calculators and negotiating lower interest rates on credit cards.

There isn't enough info in your post for the folks on the buying a home board or the CC board to help you out.

When/if you repost your question, you might want to discuss how many credit cards you have, what your limit is, how much interest you are paying on each card.

Finally, you might want to pull copies of your credit report.

-b-
Print the post Back To Top
No. of Recommendations: 0
<<However, I also have in excess of 25K in credit card debt and I would like to pay this off or at least bring the debt to a more controlable level. My question is: Which should be my priority, the purchase of a
home or pay off of the credit cards? I would love to pay off my credit cards altogether, but I may be left with too little to qualify for the purchase of the home>>

I would say that, depending on your income, the choice may not be up to you to prioritize. I believe that banks use fairly standard ratios factoring your current debt payments (including proposed housing costs) against your current income. The $25K in credit card debt may cause your ratio to be quite high. The home buying board can probably offer more info on these qualifying ratios.

Depending on your situation, it can be more advantageous to have less outstanding debt even if it means you have less as a down payment as a result.

Good luck.
Print the post Back To Top
No. of Recommendations: 0
Paying off the credit card debt is almost always the best thing to do.

Another option, since you will have a large amount of cash, is possibly to buy a property and (if you can -- not sure about this) to get enough cash to take a home equity loan. This would allow you to essentially replace the CC debt with much lower interest rate (AND deductible interest!). I would be surprised if you can do this when purchasing a new home but it doesn't hurt to ask.
Print the post Back To Top
No. of Recommendations: 0
This is a very interesting idea. Thank you.
Print the post Back To Top
No. of Recommendations: 0
All are great ideas. After reading your comments I feel strongly about getting rid of my cc debts as my first priority. Thank you for your comments.
Print the post Back To Top
No. of Recommendations: 1
Both are reasonable options. Buying another home is a solid investment but the CC's are acting as an anchor to developing wealth. So in the spirit of compromise I'll throw out some ideas that try to split the difference.

The smaller home won't hurt anything as long as its clean, comfortable and meets the minimums needed the rest is a combination of gravey and status. So get a hold of an agent, or hop on the web and see what's running around.

DC has a great transit system, I don't know what its annual costs are but I know they are a heck of alot better than commuting, the toll roads aloan can kill a person. So if you can get within walking or biking distance of the metro system(this includes the buses) you can save some bucks and it gives you time to read the morning paper(maybe, if you can sit). So you might want to narrow your search to small homes within reach of the metro. Remember you'll probably need at least 20% down.

Are you relatively handy? If so you might want to shop in neighborhoods that are going through a "rebirth". You could end up with a fixer upper in a neighborhood already on its way to being "nice" again. There are some really beautiful old homes in the DC area in need of some TLC. You can fix it up on your budget, at your pace and you have a built in hobby.

The current interest rates are in you favor now for buying a home. We might not see these rates at this time next year.

If some of this works for you, you might be able to put the minimum down and use the rest to pay down some of that consumer debt.

The other option would be to stay in the low end of the housing market and put the full 47k down and reduce your monthly payments. You might even be able to finance over 15 years, get a lower rate, build equity faster and still end up w/ a reasonable house payment. Check out some of the online calculators offered and trip a few numbers. With the lower house payment you should be able to be more aggresive in paying down the CC's.

Final two suggestions. If you haven't done it yet, snip all you CC's but the one w/ the best rate, that one goes in the sock drawer and start hanging out on the Living Below Your Means board.

jack
Print the post Back To Top