I’m a young, single, recent college graduate and I am saving up for a down payment for a house. I’m contemplating if I should instead use my savings to pay off my credit card debt. Seeing my current social status, which option would be a better investment?
— S. Jartu, Via the Internet
Homeownership is one of the cornerstones to building wealth, so kudos to you for seeking to buy your first residence as a recent grad about to enter the workforce. Without knowing any specifics about your debt situation, the general advice would be to continue to save for a down payment on a home and to also pay down your credit card balances.
You should use a structured approach to reduce debts. Start by paying the smallest balance first and progressing to the largest. As you eliminate one debt, use the cash surplus to pay off the next debt. If you have annual fees and double-digit interest rates on your credit cards, negotiate with creditors for lower rates and no fees. Or apply for a lower interest rate credit card and transfer the balances. As long as you are diligent about making payments on time over the next six months and maintain good credit standing, you should qualify for a mortgage at a favorable interest rate. Make sure you don’t close out your credit card accounts, since this could work against you when applying for a mortgage. Also, seek alternative financing sources such as grants, mortgage assistance, or low down payment programs available for first time home buyers through banks and state housing authorities.