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More Credit Card Debt Or More Mortgage |
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Dear Edith, My husband and I are in disagreement. This year we want to buy a house but we disagree on the right way to do it. We have approximately $1,000 extra a month. I think that we should use it to pay off some credit cards to increase our credit scores so that we can get a good interest rate and then try and buy a house with little or no money down. He thinks that we should do the opposite, put it all away in savings, pay the minimum on our credit cards and then buy the house using some of the money in savings. We both will be first time buyers. What do you think? |
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Your first goal should be tucking away enough money for three to six months’ expenses, where it can be easily tapped in an emergency.A savings account might be right for that, though the interest earned isn’t too great these days.
After that, the next step is to pay off your credit cards, not simply to increase your credit score, but also because you’re paying high interest on that.Credit cards are an expensive way to borrow money, and the interest you pay is not deductible.Once you’ve cleared them, of course, you don’t want to run up the balances again. If your question simply comes down to whether it’s better to borrow more on credit cards or more on a mortgage, mortgage borrowing is the better bet, hands down.The interest you pay is much lower and it is tax-deductible, which makes it even cheaper. Remember also that your credit score is used these days for more than just lending purposes.It can even affect your ability to place insurance, or determine how much you pay in premiums |
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Edith
Originally published on February 6, 2006 |
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