Should I pay off high credit card debt or save money for a down payment on a house?

in Credit

David asked:

I have about $15k in credit card debt and want to buy a house in about a year. I have $1,000 a month to either save or pay down the debt, which is the best way to go?
I currently only have about $1K in savings and my credit card interest rate is around 8%.

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12 comments

Joycee on April 28, 2009 at 1:45 am

You won’t get the house with revolving credit that is outstanding..Pay off the credit cards first. Credit cards or revolving credit is the most damaging to your credit score even if your payments are on time.
B.B on April 28, 2009 at 4:31 pm

pay off all bills before u get a home, u don’t want to buy a home and have debt..
MANTi65 on April 28, 2009 at 6:29 pm

You obviously cant handle credit cards. How could you handle a house payment? Pay your bills.
observer_2007 on April 30, 2009 at 3:16 am

I would pay the debt and try to look for no down payment mortgage. Some banks offer this option.
ci50158 on April 30, 2009 at 11:10 pm

You need to pay off your debt or you won’t get a loan for a house.
swampgrassmusic on May 2, 2009 at 3:26 pm

Pay that credit card debt, and save. With 15k at 8% you better not worry about getting a house right now. One thing you should think about with regard to a house purchase is your long-term commitment to your area. Some careers require mobility and it is a little harder to sell a house right now. I suggest you save maybe 400 and put 600 into knocking that debt down each month. Do not buy a new car and don’t get into any more debt.
autumn on May 5, 2009 at 8:53 pm

Pay off the bills (primarily) and save a little. It’ll be easier to make your mortgage w/ out all the debt. Plus – when your cards are paid off, you will bump up your credit score & get a better interest rate on your home. Also – If you get your credit score high enough, you will be eligable to buy a hime w/ no money down (except closing costs)
p_r_i_n_c_e_s_s_j_e_n_n on May 8, 2009 at 6:28 pm

“Debt to Income Ratio” is a determining factor in purchasing a new home.

With high credit card debit, you probably won’t qualify for the amount of money you need to get into a house, unless you make A LOT of money.

Maybe you should try one of those debt management companies.

Good Luck!
Nairb on May 9, 2009 at 8:52 pm

Yes! You should do both. However, your biggest priority should be paying off the debt and staying out of as much debt as you can. Those who understand interest strive to make it and those who don’t just end up paying it!
rhsaunders on May 10, 2009 at 3:54 pm

Better double-check that credit card rate — it is fairly cheap. In general, it is better to pay off credit card debt; not only will you save a pile of money on interest (credit card rates are typically 15% or more), but it will enhance your credit rating as well. In this case, if your credit card rates are really only 8%, you could afford to carry some of that debt in favor of building up a pot for a down payment. Go talk to your banker about all this; money management is what they get paid to do, and when it comes to borrowing money for a house, having someone to neighbor with can be very helpful.
AngieNYC on May 11, 2009 at 12:12 pm

What about doing both? Split the $1,000 in half, put half in savings and half towards paying down your debt. You should always pay yourself by putting some money in savings every month. Personally I would not purchase a house until my debt was cleared, owning a home brings a whole new set of bills and you want to avoid the extra burden of credit. Think out all your options on paper so you can see it laid out in front of you. I keep a little notebook journal just for tracking my finances. Also consider doing a couple of balance transfers to some credit cards that give you 0% interest, even if the 0% is only for a year or so that helps alot when youre paying it down, but make sure you read all the fine print and make sure you know what the interest rate will be once the 0% promotion is over. The website bankrate.com shows you all the credit card offers out there and what their rates are. Make sure your FICO is a decent score, this affects the interest rate you will get on a mortgage. Also check out Suze Orman, she is great when it comes to finances. Once you pay off your credit cards leave them open, the mortgage lenders will look at how far back your positive credit history goes, you don’t want to cut that history off.

P.S. stay away from ARM mortgages and any other mortgage products that seem too good to be true. Also if you are not in default and you always pay on time then there is no need for you to deal with any credit management companies, you can pay it off on your own.
warehouseoutsourcing on May 13, 2009 at 11:33 am

8% interst on credit cards is very low historically speaking and with the low interest rates on mortgages you should do everything you can to obtain a fixed interest rate on a 15,20 or 30 year fixed rate as these low rate will not last forever and once they are locked in you have that rate for the term of the loan.If you focus on getting rid of debts you may miss the low interest rates as inflation could sky rocket like in the 70′s especially if a larger scale war breaks out,or look at the trucking indexes that are usually indicators of the US Economy as a whole,even though the stock market says the economy is booming with everything moving by rail alot of things could happen to change interest rates that are completly unpredictable… but mortgage rates could (propbably won’t but could) jump to 16% and you could get priced out of the housing market,if your credit card rate on a mere 15k shoots up to 30% and you have problems paying your bills but have a home,the creditors would have a difficult time coming after your home,however if you have trouble with bills and no home…..