Todays financial question...

[dullard]

Originally posted by: piasabird
You should get some money back on your taxes for buying a house, plus the Interest and the closing costs. Especially if this is a first house.

Doh, I had a great long reply almost finished and then the whole building power went out. Here is a brief summary:

Piasabird, that is potentially very misleading information. With today's low interest rates, many home buyers who expected tax breaks are shocked to find out that they might not get any break at all. This varies by person, but I think I know Jumpem's situation a bit (correct me if I'm wrong Jumpem).

He is looking at a $160,000 house (possibly more if he can qualify). I assume as a young couple he and his significant other have little or no other itemized deductions (usually a valid assumption). I assume he has reasonable credit and can get a mortage in the 5% range. Lets just use 5.5% for this rough math. Thus that is ~$733 a month in interest.

If he buys today, he'd pay ~$2933 in interest this year. That is far, far below the $9700 standard deduction (it may be slightly higher for 2005, that was 2004's standard deduction). Thus he'd get no tax benefit at all this year.

What about next year? He'd pay $8800 in interest. Still that is less than the standard deduction. No tax benefits either.

 

[Jumpem]

Originally posted by: dullard
The 3-6 months is ideal for the average person. The average person does not have $15k in CC debt (over half pay in full each month, and for the majority who do carry a balance it is quite small). Thus the 3-6 months rule doesn't apply to you. Too many people remember rules but they forget about the assumptions the rules need to be valid (this applies throghout life not just financial rules).

My opinion:
[*]Pay down the CC debt as soon as possible.
[*]If you have an emergency, you would then have available credit on the CC.
[*]Keep just enough so that you are comfortable that there will be no bounced checks. Keep in mind that you also want to avoid bank fees for having less than the minimum balance in checking/savings (not all accounts have minimum balances). For me personally, $500 buffer over the minimum balance is plenty. You may be different though.
[*]As soon as the CC debt is gone, then consider saving for the emergency fund of 3-6 months salary (so you never need to rely on the CC again).
[*]Also consider retirement accounts. If your employer matches your retirement savings, it is stupid to turn away this free money.

My bank has no mimimum amount reuirements, and they refund all ATM fees.

The CC should be gone in ayear-year and a half if I keep renting. If I get a house they'll take longer.

I'm putting 10% into my 401K, and the company puts another 4%.

 

[Engineer]

Originally posted by: dullard
What about next year? He'd pay $8800 in interest. Still that is less than the standard deduction. No tax benefits either.

Thow in state taxes, local taxes, property taxes, charity donations (if any), etc. and it could be substancially above $9,700 standard deduction. However, saying that, I feel that the interest deduction of your house is misleading anyway. You never can do right by paying 100% interest only to get a small deduction (15%, 20% or so of what you paid in) back on your taxes.

 

[Jumpem]

Originally posted by: piasabird
You should get some money back on your taxes for buying a house, plus the Interest and the closing costs. Especially if this is a first house. That can be spent on furniture also. Dont go off the deep end too soon. You may need new windows or a roof or a water heater. Painting a house before moving in is best.

The house I am looking at is only a couple years old, so it shouldn't need anything fixed in the near future, hopefully.

We already have a living room set, kitchen table and chairs, and a bed. I paid for some of that in cash, and the rest is 0%.

 

[akubi]

Originally posted by: Jumpem

Originally posted by: dullard
The 3-6 months is ideal for the average person. The average person does not have $15k in CC debt (over half pay in full each month, and for the majority who do carry a balance it is quite small). Thus the 3-6 months rule doesn't apply to you. Too many people remember rules but they forget about the assumptions the rules need to be valid (this applies throghout life not just financial rules).

My opinion:
[*]Pay down the CC debt as soon as possible.
[*]If you have an emergency, you would then have available credit on the CC.
[*]Keep just enough so that you are comfortable that there will be no bounced checks. Keep in mind that you also want to avoid bank fees for having less than the minimum balance in checking/savings (not all accounts have minimum balances). For me personally, $500 buffer over the minimum balance is plenty. You may be different though.
[*]As soon as the CC debt is gone, then consider saving for the emergency fund of 3-6 months salary (so you never need to rely on the CC again).
[*]Also consider retirement accounts. If your employer matches your retirement savings, it is stupid to turn away this free money.

My bank has no mimimum amount reuirements, and they refund all ATM fees.

The CC should be gone in ayear-year and a half if I keep renting. If I get a house they'll take longer.

I'm putting 10% into my 401K, and the company puts another 4%.

huh? are you saying your company matches up to 4%? then you should only put in 4%. put rest in other types of investments (IRA for one...), or in your case, use it to pay off the ccs

 

[Jumpem]

Originally posted by: dullard
Doh, I had a great long reply almost finished and then the whole building power went out. Here is a brief summary:

Piasabird, that is potentially very misleading information. With today's low interest rates, many home buyers who expected tax breaks are shocked to find out that they might not get any break at all. This varies by person, but I think I know Jumpem's situation a bit (correct me if I'm wrong Jumpem).

He is looking at a $160,000 house (possibly more if he can qualify). I assume as a young couple he and his significant other have little or no other itemized deductions (usually a valid assumption). I assume he has reasonable credit and can get a mortage in the 5% range. Lets just use 5.5% for this rough math. Thus that is ~$733 a month in interest.

If he buys today, he'd pay ~$2933 in interest this year. That is far, far below the $9700 standard deduction (it may be slightly higher for 2005, that was 2004's standard deduction). Thus he'd get no tax benefit at all this year.

What about next year? He'd pay $8800 in interest. Still that is less than the standard deduction. No tax benefits either.

You're pretty much spot on. The house I am looking at is asking $200k. The mortgage lender told me 6% when I qualified for $160k. I can easily afford the house, as it would only be about $500 over my current rent. It's just that the CC debt and student loans are making lenders cautious.

 

[Ausm]

Originally posted by: Engineer
Typically, I say CC first.

Scenario:

You have a real short term emergency:

With savings, you continue to pay your bills including mortgage and possibly CC. Worse is that CC doesn't get paid but mortgage does and you simply get a bad credit rating.

Without savings: You don't pay either and have possible forclosure on your home and/or vehicles (and still get a bad rating).

A cushion is advisable, but paying extra toward the CC is also advisable. Might not be a bad idea to split the difference just for a while until the emergency fund works and then shift all remaining disposable income toward CC.

YMMV and good luck. P.S. CC debt sucks!

I agree with this scenerio.

Ausm

 

[Jumpem]

Originally posted by: akubi
huh? are you saying your company matches up to 4%? then you should only put in 4%. put rest in other types of investments (IRA for one...), or in your case, use it to pay off the ccs

They match half up to 8%.

 

[dullard]

Originally posted by: Jumpem
They match half up to 8%.

Then in your situation, I'd start by only putting in 8%. That 2% extra will help you now more than it'll help you in the future.

 

[dullard]

Originally posted by: Engineer
Thow in state taxes, local taxes, property taxes, charity donations (if any), etc. and it could be substancially above $9,700 standard deduction. However, saying that, I feel that the interest deduction of your house is misleading anyway. You never can do right by paying 100% interest only to get a small deduction (15%, 20% or so of what you paid in) back on your taxes.

We could throw in a couple thousand more for taxes, but then remember the standard deduction won't stay at $9700 and the interest won't stay at $8800/year either. Overall, he'll be quite near the standard deduction. But heck, even if he is $1000 or so over, that ~15% savings on $1000 is chump change. Certainly not enough to "be spent on furniture".

I just state this since I nearly made the mistake of thinking I was going to get tax benefits. Luckilly I noticed the mistake before I committed to anything. A coworker of mine wasn't as observant. He bought a house a few months back and told me his entire budget hinged on the tax benefits. Then I did the math for him and showed him that he won't be getting any. He was devistated and is struggling a bit financially.

 

[alphatarget1]

Yes, if your CC debt is at 0% APR for 15 months

 

[Engineer]

Originally posted by: dullard

Originally posted by: Engineer
Thow in state taxes, local taxes, property taxes, charity donations (if any), etc. and it could be substancially above $9,700 standard deduction. However, saying that, I feel that the interest deduction of your house is misleading anyway. You never can do right by paying 100% interest only to get a small deduction (15%, 20% or so of what you paid in) back on your taxes.

We could throw in a couple thousand more for taxes, but then remember the standard deduction won't stay at $9700 and the interest won't stay at $8800/year either. Overall, he'll be quite near the standard deduction. But heck, even if he is $1000 or so over, that ~15% savings on $1000 is chump change. Certainly not enough to "be spent on furniture".

I just state this since I nearly made the mistake of thinking I was going to get tax benefits. Luckilly I noticed the mistake before I committed to anything. A coworker of mine wasn't as observant. He bought a house a few months back and told me his entire budget hinged on the tax benefits. Then I did the math for him and showed him that he won't be getting any. He was devistated and is struggling a bit financially.

Oh, I don't disagree with you. Even with the elevated standard deduction (for married couples) of today, I've been able to beat the standard deduction and my interest is dwendling very quickly. Regardless, I don't like the interest = tax break arguement (as I've said before) for some of the very reasons that you mention. Add the fact that paying 100% interest to only get 15% back isn't solid. If you paying it anyway (lot better than rent), then enjoy the break (if you can get it), but don't keep a mortgage around simply for the break unless you have a guaranteed investment that will return more than your rate of interest on your mortgage.

 

[Jumpem]

Originally posted by: alphatarget1
Yes, if your CC debt is at 0% APR for 15 months

Furniture and washer/dryer are 0% for two years.

One of her CC is $8k at 15%. The other is about $3k at 8%.

I've been thinking about having her apply for a personal/consolidation loan at the bank. But I think that just might hurt her credit more since she's been using it alot lately (apartment checked it, car loan checks, mortgage checks). I think having it pulled more will just make it worse.

My goal right now is to pay off her lower CC over the next two months to be rid of the payment. In order to try and help the mortgage situation.

 

[akubi]

Originally posted by: Jumpem

Originally posted by: alphatarget1
Yes, if your CC debt is at 0% APR for 15 months

Furniture and washer/dryer are 0% for two years.

One of her CC is $8k at 15%. The other is about $3k at 8%.

I've been thinking about having her apply for a personal/consolidation loan at the bank. But I think that just might hurt her credit more since she's been using it alot lately (apartment checked it, car loan checks, mortgage checks). I think having it pulled more will just make it worse.

My goal right now is to pay off her lower CC over the next two months to be rid of the payment. In order to try and help the mortgage situation.

you need to pay off the higher % cc first. doesn't matter if the balance is higher, pay it off before the lower interest one.

you and your spouse might be better off seeking professional credit counselling.... doesn't seem like you know what you are doing (not trying to be mean or anything)

 

[Engineer]

Originally posted by: Jumpem

Originally posted by: alphatarget1
Yes, if your CC debt is at 0% APR for 15 months

Furniture and washer/dryer are 0% for two years.

One of her CC is $8k at 15%. The other is about $3k at 8%.

I've been thinking about having her apply for a personal/consolidation loan at the bank. But I think that just might hurt her credit more since she's been using it alot lately (apartment checked it, car loan checks, mortgage checks). I think having it pulled more will just make it worse.

My goal right now is to pay off her lower CC over the next two months to be rid of the payment. In order to try and help the mortgage situation.

While nice to get rid of the lower one (just to lose the payment), much better to get rid of the 8k at 15% first. Too much interest (any interest in my opinion is too much! ) to be paying. 8% isn't bad and I understand the need to drop the 3k but the 15% sucks.

 

[Jumpem]

Originally posted by: akubi
you need to pay off the higher % cc first. doesn't matter if the balance is higher, pay it off before the lower interest one.

you and your spouse might be better off seeking professional credit counselling.... doesn't seem like you know what you are doing (not trying to be mean or anything)

Why do you say I don't know what I am doing? I stated a valid reason I wanted to pay off the one with the higher rate first.

We didn't get into debt from stupidity. We got into debt because of college. We are both from poor families, and went to an expensive school paying our own way. Try going to a $30k/year college, and paying for housing and food, books, car maintenance, insurance, etc with no help from anyonr.

 

[akubi]

Originally posted by: Jumpem

Originally posted by: akubi
you need to pay off the higher % cc first. doesn't matter if the balance is higher, pay it off before the lower interest one.

you and your spouse might be better off seeking professional credit counselling.... doesn't seem like you know what you are doing (not trying to be mean or anything)

Why do you say I don't know what I am doing? I stated a valid reason I wanted to pay off the one with the higher rate first.

We didn't get into debt from stupidity. We got into debt because of college. We are both from poor families, and went to an expensive school paying our own way. Try going to a $30k/year college, and paying for housing and food, books, car maintenance, insurance, etc with no help from anyonr.

oh sorry, but you wrote that you are planning to pay off the lower cc first...

 

[dullard]

I've been reading some more of your other threads.

Sorry, I thought you were married already. Since you are not married, you will likely get a tax deduction on your house (not this year if you buy today since the interest/tax paid will still be too small, but next year you would if you are still unmarried.)

Can you put off the house for a while (maybe up to a year)? If so, I imagine you could fairly easilly get rid of much of your debt. The CC bills at least should be able to be paid off by then.

Heck, if you can make a dent in your furnature/washer/dryer bill too it would help you get the mortgage you desire. Even though you are paying 0% interest, this debt still is considered in your credit score and your mortgage qualification. And remember, you typically have to pay off those 0% loans in full before it is due otherwise you get charged an outrageous (often 20+%) interest for the whole time you had the loan. So make certain you can pay them off in full before their due date.

You mentioned wanting to get married but not having the available funds. Waiting a bit on the house will give you that opportunity. Remember you don't need a lavish wedding to have the best day of your life, in fact often the gifts are greater in value than the wedding cost if you spend wisely. If you get married, I imagine it'll be easier to get the mortage you wanted since they could then combine incomes.

I understand the lure of a house right now. For many people a house is much more pleasant than renting and can be a good investment. I just think you might be putting the cart in front of the horse. You've got yourself in a good situation: wonderful girlfriend, great combined income, good education and it seems like you are headed in the right direction. But maybe, you need to take care of some other issues first before buying the house.

 

[alphatarget1]

Where do you live btw? Houses in California (where I live) are ridiculously expensive and it won't surprise me that the bubble bursts one of these days.

Can you BT to a lower rate card (8%)? What's her credit score? I think Citibank still has a 12 month 0% no BT fee card offer floating around.

 

[Tiamat]

Right, interest on your savings will never approach the interest on your debt. Pay off as much of the debt as possible, but keep enough for 1 month of living expenses. If you feel that there is no possible chance that you will lose your job, or that your stable source of income will not terminate suddenly, you may be able to slim your savings a little bit more, but i wouldnt do that personally.

 

[tw1164]

I would keep 1k as a rainy day fund; If you have more then that in your saving, you should use that towards your debt.

 

[Jumpem]

Originally posted by: akubi
oh sorry, but you wrote that you are planning to pay off the lower cc first...

Yeah. I mentioned that mortgage lenders are primarily concerned with what your monthly debt payments total when figuring out what to approve you for.

Well paying off the lower limit card doesn't make financial sense, it would allow me to lower my total payments sooner, and thus get approved for a higher mortgage.

 

[YetioDoom]

Originally posted by: dullard
I've been reading some more of your other threads.

Sorry, I thought you were married already. Since you are not married, you will likely get a tax deduction on your house (not this year if you buy today since the interest/tax paid will still be too small, but next year you would if you are still unmarried.)

Your income to debt ratio is quite small. Can you put off the house for a while (maybe up to a year)? If so, I imagine you could fairly easilly get rid of much of your debt. The CC bills at least should be able to be paid off by then.

Heck, if you can make a dent in your furnature/washer/dryer bill too it would help you get the mortgage you desire. Even though you are paying 0% interest, this debt still is considered in your credit score and your mortgage qualification. And remember, you typically have to pay off those 0% loans in full before it is due otherwise you get charged an outrageous (often 20+%) interest for the whole time you had the loan. So make certain you can pay them off in full before their due date.

You mentioned wanting to get married but not having the available funds. Waiting a bit on the house will give you that opportunity. Remember you don't need a lavish wedding to have the best day of your life, in fact often the gifts are greater in value than the wedding cost if you spend wisely. If you get married, I imagine it'll be easier to get the mortage you wanted since they could then combine incomes.

I understand the lure of a house right now. For many people a house is much more pleasant than renting and can be a good investment. I just think you might be putting the cart in front of the horse. You've got yourself in a good situation: wonderful girlfriend, great combined income, good education and it seems like you are headed in the right direction. But maybe, you need to take care of some other issues first before buying the house.

Quoted for truth!

 

[Jumpem]

Originally posted by: dullard
I've been reading some more of your other threads.

Sorry, I thought you were married already. Since you are not married, you will likely get a tax deduction on your house (not this year if you buy today since the interest/tax paid will still be too small, but next year you would if you are still unmarried.)

Your income to debt ratio is quite small. Can you put off the house for a while (maybe up to a year)? If so, I imagine you could fairly easilly get rid of much of your debt. The CC bills at least should be able to be paid off by then.

Heck, if you can make a dent in your furnature/washer/dryer bill too it would help you get the mortgage you desire. Even though you are paying 0% interest, this debt still is considered in your credit score and your mortgage qualification. And remember, you typically have to pay off those 0% loans in full before it is due otherwise you get charged an outrageous (often 20+%) interest for the whole time you had the loan. So make certain you can pay them off in full before their due date.

You mentioned wanting to get married but not having the available funds. Waiting a bit on the house will give you that opportunity. Remember you don't need a lavish wedding to have the best day of your life, in fact often the gifts are greater in value than the wedding cost if you spend wisely. If you get married, I imagine it'll be easier to get the mortage you wanted since they could then combine incomes.

I understand the lure of a house right now. For many people a house is much more pleasant than renting and can be a good investment. I just think you might be putting the cart in front of the horse. You've got yourself in a good situation: wonderful girlfriend, great combined income, good education and it seems like you are headed in the right direction. But maybe, you need to take care of some other issues first before buying the house.

I agree with most everything you've said. Thanks.

I would be better off waiting on a house. I could literally have all of the CC debt paid off a year from now if I keep renting. It's just that we keep looking in the real estate section of the paper and seeing things we like.

My gf and I decided that if we can't get approved for this house (which we likely won't) that we just won't look at houses for sale until out lease is up next spring. That way we won't keep being frustrated at seeing houses we can't get approved for, even though we could easily make the payments.

 

[Jumpem]

Originally posted by: alphatarget1
Where do you live btw? Houses in California (where I live) are ridiculously expensive and it won't surprise me that the bubble bursts one of these days.

Can you BT to a lower rate card (8%)? What's her credit score? I think Citibank still has a 12 month 0% no BT fee card offer floating around.

I live in Syracuse, NY. Houses aren't too bad around here. The one I have my eye on is 1900sq.ft., 8 acres, $200k.

Her score used to be in the low 700s. I think it has gone down a good bit lately with all of the credit checks she's had. She applied for a 0% BT fot Discover, but they said she had too much credit already.