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Advice needed, please

July 14th, 2008 at 01:45 am

I would really appreciate feedback from all of you. I know there are many more financially savvy individuals here than practically anywhere else, so I know I'll get great thoughts and suggestions from you all. Smile

I have been putting all extra money toward the CC you see to the left which is at 0% until February 2009. I was hoping to have the entire balance paid off by the time it returns to a higher rate. At this point I am not sure if that will happen or not. Right now I have about $600 to put toward my goal, but I am holding on to it until I get some advice from you guys.

Now that I am half way to the 0% offer's conclusion and have only paid about 25% of the balance off, I am wondering if I should change my plan. I am thinking maybe I should put all the extra money I was putting toward the 0% card instead toward the debt with the smallest balance (a personal bank loan) - $3300 at 6%, or to the one with the highest interest rate (another CC) - $4600 at 10.51%.

We are trying to pay down our debt now by throwing all extra money toward it, then save for a down payment on a home. I would love to be able to buy a home within the next year while prices are still down, but right now our debt/credit limit ratio on the CCs is still very high at 38.6% (down from 41.2% in January) and our minimum monthly payments are high at about 27.5% of our monthly gross income.

If we pay off the bank loan we would lower our monthly payments to 24.3% of our gross, and if we pay off the 10.51% CC it would be about 25%.

We've never bought a home before or shopped for a mortgage but I think those are things they look at during the mortgage process. Do any of you who know about mortgages and home-buying have any insights for us?

Any and all thoughts are welcome! Smile

8 Responses to “Advice needed, please”

  1. boomeyers Says:

    I would definately throw the extra money at the high interest rate cards! Why keep giving the CC companies more money?? Coast on the 0% card and when it gets close to its due date, you can always flip it to another 0% or low percent cards, which you should be able to get with no problem if you pay off those high interest rate cards. Good luck!

  2. creditcardfree Says:

    I would probably throw the money at the debt with the larger interest as well. It is also the one with the lowest balance, too. Do you know what interest rate the cc will be after the 0%? How much are you able to throw at these debts each month? If the 0% goes to something much larger than the 10%, I might still put the money towards it.

    I think as long as you are under 36% of gross with all payments you will be okay. But check me on that. We've never had a lot of debt to be worried about it so I could be wrong. Mortgage qualifications are changing rapidly because of the current economy and foreclosures.

    Great job paying as much as you have! If you start focusing on the $3300 card, how quickly do you think you could pay off?

  3. baselle Says:

    Throw the money at the debt.
    The housing market is not a "V". Its going to take years before prices even stop going down. It might be a "U", but more likely, it will be an "L" for a good long while.

  4. merch Says:

    I would say to throw the money at the 10.5% debt. The way I look at it is you can always roll to a another zero balance next year.

    And I agree with Baselle. The market isn't going to go straight up. Pay off your debt then horde as much cash as possible. Remember, your mortgage should not exceed 25% of your take home.

  5. EileenBQ Says:

    Having been a mortgage broker for over 20 years, I have seen quite a few people with really serious credit issues.

    My advise. Pay off the highest interest rate card 1st. Once the balance is paid in full, keep the same payment plus the minimum going to the card with the next higher interest. Keep going til they are all paid in full. The 0 interest, don't worry about now, either do a balance transfer or start on the interest once all the others are gone.

    As a former lender some of the things that will work for you.
    1- Establish a WRITTEN budget, this is something that you can show to your lender to show you are serious and committed to getting the bills paid off.
    2- When you are getting closer (bills paid off) start a budget for the new house payment. What that means is figure out what your new house payment will be and every month SAVE that - again WRITE THIS DOWN. This will show the lender that you have the ability to save money, know how to budget and that you take your debts seriously. When it comes time for your actual downpayment, you will have it in the money you will save every month as your potential home.
    3- Start checking your credit. Don't open any new accounts, don't have any ONE account showing more than 25-30% of the available balance. If you have any issues, with negative credit start working on it now to get it cleared up.
    4- Don't buy a new car or any big expenses.

    The lending climate has changed. The rates are lower but the credit is tightening. Lenders now are being VERY conservative. Also, don't go to a bank for a home loan, they have usually one product, one underwriter and no thinking outside the box. Look at a local mortgage broker, but get suggestions from people you know and ask if they were happy with their lender, there are some really good, and some not really good ones out there.

    EileenBQ

  6. snoopycool Says:

    I'd also get rid of the debt with the highest interest rate. Don't worry about the housing situation. You have time.

  7. MariRDH Says:

    A few questions answered:

    The regular "purchase" rate on the card that is at 0% is currently around 12% so that is what the balance will go to starting February 1, 2009.

    I put as much as possible toward the "goal" each month, but it fluctuates. This month I have been working extra hours and I am starting a permanent PT job this week that will be an extra 4-5 hours each week that will go to the goal. I am hoping for an extra $300-500/month for debt payment.

    If I figure an extra $300/month toward debt and putting the $600 toward it right now, the $3300 will take approx 7 months to payoff (Feb '09), OR the $4600 will take approx 10 months to payoff (May '09). They both sound so far away! Frown

    I've got a written budget in YNAB that I have kept since October (when I started my job), we have a $5000 EF, and both my and hubby's FICOs are in the high 700s so we are good there. We just have too much debt and not enough cash!!! Frown

    The reason we are desperately wanting to buy a house is because we have been living with my parents for many years now and it is past time to have a place of our own. Of course, I don't want to do anything stupid and jump into a mortgage we can't afford so I am trying to be patient...but it is very hard.

  8. creditcardfree Says:

    If you can put $900 a month towards the 0% debt from Aug-Feb...you will have paid off $6300. That leaves a balance of $1100 at 12% in Feb 09. I would still be putting your "goal" money to the 0% card, just so that the balance is much lower when it gets to 12%

    If you really can put $900 extra a month towards these debts you will pay them off quicker than you are calculating above. Try out the calculators here to figure how long it will take to pay off your cc debt.

    I also think it is important to get that 10.5% cc on a lower rate if you can find it. Best wishes!

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