3. Mortgages and Credit Card Debt

Should I Pay Off Credit Cards or Save For Home Purchase?

Q: How do you save money to buy a home when you are swamped with credit card bills that just seem to suck every last bit of savings?

A: I know exactly how you feel, since I was in that very same position at one time.

First of all, you need to be sure that your credit card interest rates are as low as possible. By "low" I mean below 9.9%. There are many excellent credit-card offers available from numerous banks, which make the rates very competitive. Look through your junk mail for credit line offers and read the details. Start using the 0% offers and track the dates when they expire so you can be sure to transfer your balance before the rate is increased. You can also find great offers at DebtSmart.

Once you've minimized your interest cost, you need to make saving for that house a priority. The way I saved while paying my credit card bills was to make minimum payments. That's right, it's one of those exceptions to the pay-the-most-to-your-credit-cards-first rule.

In this case, to save for the down payment of your house, you make the minimum payments to your credit cards and bank the difference. That's because you need to save your own money to use as a down payment and for closing costs. While technically you might be able to use cash advance money from your credit cards to buy a house, it's not the smartest move.

The strategy here is that you're going to create extra money by paying less each month on your credit cards. Many times banks will give you an opportunity to skip a payment. That's the perfect time to save that extra payment in a bank account toward your house down payment.

Many people would criticize me for suggesting that you pay less to your credit cards because you're going to pay extra interest. However, this interest cost is the fee you pay to be able to get the cash for the house. It was worth it for me and everything turned out just fine.

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3. Should I Pay Off Credit Cards or Save For Home Purchase?