My husband and I have 10K in the bank. Should we pay off our credits cards or put it towards a down payment?

Question

We currently rent.
Together, we have approx $10K in debt.
We both have excellent credit.

Our interest rates are very low, 7%

Answer 1

Number 1, don't listen to Suze Orman as she is a failed Merrill Lynch advisor. My advice, if you only have $10,000 in the bank and have $10,000 in CC debt, keep paying your payments each month and save the most you can each month if you want to buy a house. If you pay off your debt and have nothing left in the bank, what would you do if you or your husband lost your jobs or had an emergency? You would end up going into debt further. Always, always have an emergency fund. Don't put all of your money down on real estate because when you need money in the future, you can't get that equity out without a cost! If you have the means to, pay a little extra towards your debt, but if you can't then don't worry. The national household debt average is over $70,000 and that is not including mortgages. You're in much better shape than most couples.!!!

Answer 2

If you aren't having any issues with the credit card payments, and the rates are reasonable, I'd suggest doing nothing with the money right now, even committing it to a downpayment. Homeownership, especially for the first time, can be expensive, and it will provide you with a cash cushion so that you don't have to take on more debt once you buy a home.

However, I would also suggest that in addition to having $10k available in the bank when you buy your home, that it would be best to have your credit cards paid off, too. So maybe wait a while longer to buy a house until you have both $10k in the bank and paid off cards.

Answer 3

Check out the interest rate you are paying on the credit cards. If you are paying under 10% you may prefer to use the money toward a house. After you buy the house and get some equity in it, if the mortgage interest rates drop you can borrow against it and pay off the credit cards. When the debt is tied to your mortgage you can then write all the accrued interest off on your annual taxes.

You can always talk to lender and get a credit (pre-qualify) analysis done and they will tell you straight up if the credit card debt impacts your ability to finance a house. It never hurts to get as much information as possible beforehand.

Good luck and (maybe) happy house-hunting! :-)

Answer 4

Assuming that your credit card interest is averaging about 18% and based upon your collective debt of $10K, I would pay off the credit cards first. Why? You'll actually save money (on the interest) and you should consider leveling out your debt before taking on more (buying something that you have to pay a down payment).

Answer 5

Pay off the credit cards and build your credit up. If you have $10K worth of credit card debt, then you NEED to get that paid off first before you even consider buying a house.

If you went ahead and tried to get a loan/buy a house, you'll LOSE more money with a really bad/high loan rate and STILL have that credit card payment.

Answer 6

Pay off the credit cards. The price of homes is still on a downward spiral and are not worth taking the risk on right now. Get rid of your current debt before getting yourself even deeper into debt, especially since the real estate market is no longer "a sure thing" anymore.

Answer 7

Why don't you split it - and possibly save more, if need be, for the down payment? You should for sure pay off the credit cards becuase in the long run it'll ruin your credit and credit debt isn't a good thing to have going into a mortgage - it will kill you...so be wise...and don't rush into buying a house.

Answer 8

It really depends on how soon you're looking to buy. Because you alread yhave a good credit score it isn't a crucial that you get your debt-to-credit ratio lower. However understand that if you're looking to purchase soon, the amount you owe will be evaluated when it comes to determining the amount and interest of your loan.

My wife and I in a VERY similar situation. We put our 10K in a CD and have used our regular monthly income to pay on our credit cards. We've now gotten 3 cards to a zero balance, and our scores are going up.

Answer 9

I'd get rid of those interest eating cards. Then you have better credit and you can get a bank loan for a home. Homes will go up in value a lot quicker than your credit cards will, but then you still have the paid off cards and they are so tempting.

Answer 10

You need to talk to your mortgage broker. With the debt...you may qualify for a lower loan amount for a house. And, you may have to pay a higher interest rate. You might be able to buy the house then take out a home equity line to pay off the credit card...that would be at a lower interest. Good luck, buying your first house is so exciting. :)