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Does it make sense to anyone other than me?

May 30th, 2007 at 11:12 pm

Well my husband and I got in a little arguement about money today. Our credit card debt is at about $6000 (you don't want to ask...) and that drives him crazy since neither of us have ever had that much on credit cards before and it just seems to keep going higher.

I'm not as worried about it as him because we have money in the bank and our net worth is positive...around $18,000. I would rather have $12,000 saved for a down payment on a home w/ $6,000 in credit card debt, rather than only $6,000 saved for a home downpayment and no credit card debt. Does anyone agree w/ me on this?

19 Responses to “Does it make sense to anyone other than me?”

  1. koppur Says:

    I gotta say, after dealing with the CC debt I got myself into, I'd rather have the smaller down payment and no debt. I look at it this way. Ity may take you another year or two or three to save up another $6,000for the down payment, but in that time, the cc debt will not go to zero becasue of the interest. In the same amount of time, even if you pay off the cc, you will be paying off more on it b/c of interest.

  2. yunakitty Says:

    I agree. Suze Orman always says it's more important to pay off debt than to save (unless it with some kind of matching thing at your employer.) The amount you pay in interest is way more than you'll earn in interest on the money you have.

    If you've got that much cash saved, then pay off the credit card debt in full. You'll do your credit score a BIG favor, which helps you out when you go to buy a house WAY more than how much you have to put down. My husband and I have really good credit, so we were able to get a great interest rate, and the bank was willing to work with us (waiving brokerage fees, accepting a lower down payment) because of our good credit score.

  3. mbkonef Says:

    I have to agree about getting rid of the credit card debt. The last thing you want is to own a home, have something happen to your income source (due to illness, job loss etc - Trust me, it happens) and still be owing the credit card debt on top of the mortgage. My DH was basically jobless for the last 10 mos. Unemployment and then the jobs he did have did not cover all the bills. Between my part-time job, savings and a home equity line of credit, we are just now getting back on our feet. We were debt free (other than mortgage and his truck loan) prior to this and we never would have made it without losing our home if we had already had additional debt to carry. If I were you, I would pay off the credit card and save like crazy to increase the down payment, even if it means renting for another year. I will not buy a home if I cannot put 20% down at a minimum. I simply refuse to pay PMI, plus I feel that if I cannot afford the 20% down, I am probably getting in over my head. My advice is pay off the credit and keep on saving. I know it is not fun and probably not what you want to hear but I think you will be really glad you did a few years down the line.

  4. monkeymama Says:

    No, I can't agree (am I reading this right?). If the credit card debt is at 0% I guess I would agree. But otherwise no, there is no way you can get ahead paying credit card interest. Pay it off and save save save. Otherwise you are just working backwards with finance charges.

    At least if you take a larger mortgage it should be a lower interest rate. Though I recommend paying it off and then waiting until you save it back up. There is no hurry with the housing market these days.

  5. homebody Says:

    Like Monkey says, if it is at 0% or very low interest, lower than what you are getting on your savings is the only way it makes sense. Are you doing VA loan? I don't know if they add PMI like regular mortgages. My YD and her husband bought with no down payment and their payments are just a little bit more than their rent, and covered by the housing allowance. So if that is the case for you, you should buy as soon as you can. I think the financial rules are a bit different for VA loans.

  6. disneysteve Says:

    Agree with the others. Unless the CC is at very low interest, you should pay it off. It makes no sense to keep the money in the bank at 5% and pay interest at 15 or 20%.

  7. scfr Says:

    Gotta agree with your husband and the other posters ... I would pay off the credit card debt and keep the cards paid off each month. With no interest or fees, you'll have the house fund back up to where it was quickly!

  8. Brooklyn girl Says:

    I agree with the previous posters. It makes more sense to pay off the debt.

    There is also a psychological aspect to this -- a mentality that credit card debt is ok and "not a big deal" does not lead anywhere good. It is a slippery slope. Credit card debt is not OK and is a big deal.

  9. carol Says:

    Putting my two cents in. Pay off cc debt.

  10. katwoman Says:

    Pay the card in full. Now, let me tell you why I say this - 1) you've stated that you've never had a credit card balance this high before and 2)it doesn't seem to bother you.

    1&2 can be deadly when paired up like that so best to split them up, don't you think?

  11. Amber Says:

    I agree with koppur and every one else, I would rather pay off the cc and hold of a little bit (save) and then put the money down for your house. CC really stands for TROUBLE.

    Good luck

  12. fern Says:

    If you're only making minimum or small payments on your credit card debt, it will eventually erode your savings, so your financial picture will not benefit from continuing to carry that debt.

  13. armyamy Says:

    Thanks for all the comments. I guess since everyone that posted here is voting to pay off the credit cards, that I should take that as a sign! I didn't even think about how the credit score comes into play when buying a house...good point!

    I think I'm going to leave the 0% card balance a while longer, but pay off the 16% right away! Thanks you guys for all the advice, though I hate to admit to my Hubby that he was right! Wink

  14. homebody Says:

    Ha ha, it's gets easier to admit they are right the older you get, easier for them to admit you are right too.

  15. LdyFaile Says:

    I'm going to disagree slightly with everyone here. When I was looking into getting a house a couple of years ago I talked to a good friend of mine who is a mortgage broker. He says that it's better to have a credit card that's about halfway charged up than completely paid off or completely charged up when you go to apply for a mortgage. Completely paid off means there's potential to go into a lot of debt right away. So I guess the question is, how soon before you look at getting a house? And what is the credit limit on the card? If you're looking at getting a house within a year I would look at using some of the savings and pay off as much of the card as possible to get it at around 50% of the credit limit. If it's still a couple of years out, I'd pay the sucker off and just add the payments you were making on the CC back into the savings account. When you're about six months til you are even going to think about looking for a house, charge up the card to about half and maintain the payments monthly. That way when you do apply you fall in that just right category. I dunno, that's what I would do. Just my two cents for what it's worth.

  16. disneysteve Says:

    LdyFaile - I have to disagree. More debt is never better than less debt. You shouldn't carry CC debt and waste money on interest if you have the means to pay it off (unless 0%).

  17. Amber Says:

    I agree with disney,my friend who is not a broker but works for a firm stated one should carry a balance until the next billing cycle and pay off in full. What banks are looking for is the fact that you can make monthy payments on time

  18. tenar Says:

    i think you're right, its better to payoff what you owe, the longer you keep the debt, the more you're charged

  19. Lux Living Frugalis Says:

    We ran into that when we bought - we had about 35,000 limits on our cards w/o any charges - the mortgage broker saw it that we could get into that amount of debt on top of our mortgage so balked a bit. We simplified it for them and called and had our limits lowered to more reasonable amounts - shouldn't have been that high anyway. I vote with everyone else - pay off the CCs.

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