Financial questions

[Jeff5886]

I have a few questions for you financial gurus... .



My wife and I in the next 6 months will be buying our first home. I want to pay off some debt that I have to get my credit as high as I can before we buy. I am currently saving after bills over 1k a month. I have debt and I am trying to decide in what sequence I should pay off my debt.



1. I have a personal loan that I've had for 2 years that I really just took out to help my credit out (add positive history). I can pay it off now, but my questions is, will it be better to pay on it for a couple more years and let it build my credit history? I don't want to pay it off early and have the account closed because I fear this will not look as good on my length of established credit.



2. I know the rule of thumb is to pay off the debt with the highest interest rate first, but I have 4. 0% interest on my credit card and like 11. 0% on my personal loan. When the credit companies review my credit and score, would it be better for my debt to available credit ratio to have the credit card payed off or the personal loan? I fear that if I pay of the personal loan first, that it wont impact my debt to available credit ratio.



3. For the money that I am saving every month, where should I put it? I already have TSP (Military 401k) that gets about 150 a month invested for long term. As the money piles up, should I just apply it every month to the debt, or should I let it sit in a savings or money market account?



Thanks for your help,

Jeff

 

[Buffalo]

I'm not a financial guru but, i think I would make a number of phone calls to mortgage brokers & see what they "look for" in mortgage applications. What debt is more acceptable, etc.



I'd try to get that 11% debt paid asap. I just don't like debt!!!



Over the years, I've heard that the Roth IRA's are excellent. I have a traditonal IRA &, for me, it's too late to convert to a Roth because of my age (63). You can only put "taxed" money into a Roth but, all the interest + principal is tax-free when you start to draw it out. You sound like a younger man & this could be a significant amount of money, & savings, once you retire.



Personally, I've always liked to get things paid-off as soon as possible. I LOVE cash!!! The more, the better!!! I'd rather have a smaller (paid for) house than a large house with a big mortgage. But, that's just me.



It's funny but, a number of my friends who are well-off have borrowed money from me. They have beautiful homes with luxury cars & NO cash. You'ld be surprised at how many of them have told me they wish they had a simpler life with things paid for. When you are young, it's nearly impossible to be debt free but, it is something to plan for when you are older. You can "ride through" these rougher economic times without worry. That feeling is quite valuable.



Good luck.



Joe F.

 

[kenny61]

get your credit score if it is good do nothing until you get your mortgage than pay off your highest %apr first.



not an expert just my opinion

 

[jgillott]

I certainly do agree with Buffalo on eliminating the 11% debt ASAP. At this point in time, I don't think an early payoff will have any real negative effect on your credit especially considering that you will be increasing your income to debt ratio. I would think that, in light of all the debt defaults that are happening, showing an ability to manage and pay your debts may be a positive at this point.

 

[CumminsBu]

Military, if you have Usaa banking call them, they will tell you your best option and advise. They were great for me and my VA loan.

 

[p-Bar]

Jeff my wife is in real estate and her recommendation is to make sure you have a seasoned loan officer that can help you boosting your credit score they know how the FICO works the best. It's a great time to buy good luck

 

[SNGLESHOT]

Check out Dave Ramsey. Dave Ramsey Homepage - daveramsey.com You do not have to buy his stuff... but check it out. He dosn't have a dime of mine but I read his book "total money makeover" in the library (remember those places) and I am almost debt free except for a home equity loan. He has a lot of good ideas. The previous advice given to you so far is all good also in my book. Good advice indeed regarding the Roth IRA's.

 

[Jeff5886]

Thanks for the replys guys! I'll be going to the library to get total money makeover!

 

[JLEONARD]

I'd rather have a smaller (paid for) house than a large house with a big mortgage. But, that's just me.

No it's not just you. Me too. We downsized a few years ago to be mortgage free. It's awsum.



The theory I always liked is "Pay yourself first". Meaning max out your 401K contributions if you can. Down the road you will not regret it.

 

[scootergmc]

Meaning max out your 401K contributions if you can. Down the road you will not regret it.

Plenty of people are regretting it after the last two years. :-laf

 

[JLEONARD]

09 was a great year. 08 sucked. But I was advised and did put most of mine into a guaranteed annuity 4 years ago. In a loss year guaranteed at 6% in a good year makes whatever the particular market makes based on my mix. As long as I keep it in there for 5 years I get the guarantee.

So I didn't lose anything.

 

[bheiting]

I wouldn't be in a hurry to jump into home ownership at this point in time with
foreclosures pressuring real estate prices. If you decide owning is the answer
be prepared for possibly lower home prices next year. Here in Minnesota, the
state is discussing the possibility of cutting aid to cities and counties, resulting
in higher real estate taxes. That obviously puts more pressure on home prices.
All of the states are facing huge deficits. Personally I'd keep renting if you have
a decent land lord and pay reasonable rent. When inflation takes off, then buy.
You'll be paying off your mortgage with cheaper dollars.

 

[GHarman]

Some hard earned advise

You are on the road and heading to an intersection. Which way to go? (IMHO) This is not SEC investment advise, just what I have garnered over the years. First of all; save all you can. Rent for a while, if you like the place and the landlord. Cash is king, as the old saying goes. You need at least 20% down on a mortgage to avoid mortgage insurance. YOU determine what you can afford to pay. Don't let a mortgage broker tell you what you can afford! You seem to be young and have lots of possibilities. If you decide to buy, know the property! If anything does not look right, have questions about any part of the deal, be careful. Do not let a nice view, colorful carpet and new paint sway you or your spouse. Know what to look for! Dont be afraid to crawl into an attic or check for repairs around plumbing, cracked sheet rock or inspect for roof damage on any house you look at. Know the local rules that home sellers are required to follow when looking at a house. For instance, here, we are required to have a County Well and Septic inspection that is less than 6 months old, as well as the normal realestate disclosures.

While you are waiting, learn about buying and fixing distressed property and what properties are available. This may be a way to get what you want at a more reasonable price. Watch the County and City tax auctions. Learn your City, County and State EPA regulations, Well and Septic requirements. They can kill your property and finances, no matter how well you plan. This can happen with ANY property!

Consider building from scratch using a manufactured home like Heritage Homes, or Morton Buildings as an example. There are many ways to approach this issue and it depends on what YOU want.

Investments, right now, are strong on commodities. Take a small percentage of your savings and buy Gold or Silver bullion. Watch the price swings, buy low and sell high. Gold dealers are everywhere, but watch front end and back end sales fees. Bullion is easy to store and a hedge against the worst case scenerio. Every investment is in a manipulated market. YOU can learn to be your investment GURU. www.Fidelity.com has good stuff for folks learning about investing. Dont put all your eggs in one basket, but dont invest in stuff that has no intrinsic value. Stocks are scary, but if it pays regular dividends, trades at a high daily volume, it has value (Temporarily. Its all temporary!). Do your due dilligence! If the price grows, even better. Stay away from IPO's and low volume securities. Nobody can tell the future, not you or I or a 401K manager. Be aware, educated and responsible! I wish you well! GregH

 

[KevinSmith]

Thanks for the replys guys! I'll be going to the library to get total money makeover!

I really like his way of thinking about finances. That book is one that you and your wife should read before you buy the house. It is advice that really works for working people. Good luck.

 

[GHarman]

Reading

The "Rich Dad Poor Dad" books are good! I also read the "Richest Man in Babylon" many years ago. Learning to develop aquisition and disposition plans are the toughest part. I am still learning! GregH





Rich Dad - Welcome to Rich Dad!

http://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(book)