I plan on buying a home within the next 5 years. For context, my wife and I are 27 with an 18-month old. My income has recently increased from about $30K/yr to about $50K/yr. including overtime, and my wife does not have any income.
I've attempted to save toward a down payment, but I've wiped my savings twice in the last year; once to pay a few debts (~$1.6K) and another time for out-of-state moving expenses (~$2.3K). That leaves me with about $1K in a 3-year CD with Ally Bank and no money in any of my savings accounts.
The good thing? I started a job in June only 5 minutes from my new home, where I expect to be able to save about $1.5K/mo. after living expenses (my last job, I was only able to save about $200/mo). I personally have about $18K in outstanding debt between a $7K student loan and various collection agencies, ranging from $300 to $5000. The accounts charged off late 2016 when I was financially crippled, and are due to fall off between late-2023 and mid-2024. My wife has a few fraudulent medical bills currently being disputed and one charge off that I am certain we can do a PFD for. We also have about $13,000 left on our vehicle, to be paid off by mid-2022.
The not so good thing? Both my wife and I are starting school this month. The degree programs are online, and tuition is about $3800 per year. That will put us at about $30K in student loan debt by the time we graduate, which is also around the time our debts will fall off. I suspect it will take me about two years to pay the debts we have now, leaving us with just student loans to worry about by the end of 2021. I am wondering if it is wisest to:
1) Pay off all collection debts and focus on building our credit
2) Pay for school out-of-pocket so as to not graduate with much debt
3) Saving as much as we can for the house and just let everything fall off
I am happy to provide any additional data points. Thank you all for being such a supportive community!
@CreditInspired wrote:5 years is a long way off and a million and one things can happen between now and then.
So generally, in the next 4 years, make sure:
- Both of your credit reports are clean--no baddies of any kind (lates, collections, returned check)
- Make sure there are no NSF fees on your bank statements
- Take care of any existing collections
- Resolve all disputes (LOs don't want to see disputes on your CRs)
- Make sure you have at least 3 credit cards (bank is best) and use the AZEO method (all zero balance, except one)
- Get in the habit of paying in full, if you're not already doing so.
- You say you have a lot of debt and about $1.5k in disposable income. IMHO, use this $1.5K to pay down these interest bearing CCs as soon as possible.
- Weigh whether the $30K (for both of you) spent for an online degree are going to net you the type of degree to find a marketable job so you are able to pay the loans back.
So, I think this can get you started in the right direction.
GL2U
Yeah, 5 years is a long time. I'm hoping to be able to do so long before then, but I definitely need to WITHIN those 5 years.
I'm conflicted on the collections, which is why I asked the community -- a lot of people buying their homes were actually advised by their LOs NOT to pay their collections and SAVE that money. Though, I realize everyone's situation is different, I was curious why in some situations it's best to save vs. paying the debt.
All the accounts which we have balances on are closed, which is good. And we've been using AZEO since May, we each have about 3 CC's each with NFCU, Discover, and Capital One. I'm liking the rebuild, but the saving side is what's racking my brain. Thanks for your input!
