The house market right now, coast to coast, is absolutely crazy. There’s a fistful of reasons for this, and most of them are temporary. If you don’t have to buy a house right now, wait a while. In the meantime, pay off your credit cards. Once you’ve got that done, you can continue to use them, but pay them in full every month. If you have some investments that are making more than the rate on your car loan, keep the loan, maybe with a re-fi if you can get a better rate.
As for investments, we’ve had very good results with a mutual fund called TIAA Cref. Their ads now just call it TIAA. Value Line mutual fund is another good one. Years ago, we were playing some individual stocks with advice from the Value Line stock-picking service, but at 71, we’re into a lower risk profile.
I don’t care if I lived in a box under the interstate. I wouldn’t buy a house now or do any home improvement projects. The prices are insane and it has to be a bubble. Wait for prices to normalize or even crash, then buy.
I also agree with this. Pay off that 14.9% car loan. You are effectively giving yourself 14.9% interest if you put your regular payments in savings. Pay off your credit cards. You get an effective 20+% interest if you make those payments into savings.
Then in a couple or three years you start beefing up your credit and have “paid” yourself back from the CC and auto loans and hopefully things return to normal in the housing market and you can either buy a turn key house or a fixer upper to fix up at regular prices.
Also, it doesn’t seem like much, but if you refrain from ordering pizza tonight and throw something in the crock pot, that shit adds up really, really fast, in money and in your waist line.
I don’t know about anyone else, but I am puzzled why, if you can pay off a $16k loan in full you continue to have a maxed out credit card. WTF? Pay off that credit card.
IF you have sufficient funds left over pay off the vehicle.
Then take the money and interest you would have otherwise paid and either put it towards your six months living expenses fund (not “3-6” - do the full six or more)
THEN think about down payments for a house, or investments for retirement, or just a couple years investments to grow that money until the housing market settles down a bit so you can get a good deal. Meanwhile, charge a small amount on the CC every month and pay it off completely to improve your credit rating.
Everything else looks good to me, but use the credit cards to the full, especially if you get some cash back. BUT - pay it/them off in full every month. The credit score system will see you as a sensible citizen who manages their debts properly.
A few words of clarification (or perhaps some posters in this thread are incredulous so maybe I’m just reiterating).
We have the cash funds on hand (in a standard savings account at a credit union, not in any particular investments) to pay off the car loan and the CC today.
We also have in savings:
this. Yes. That is exactly what I mean. That is in addition to the funds needed to pay off the CC and the car.
If we were to pay off the CC, car, and use $50K to put a down payment on a home today we would have used the vast majority of our savings, not leaving the 3-6 month emergency fund.
Aside: My wife grew up dirt poor (like, surviving on handouts and food pantry boxes for years on end while living in a home with no heat) and my parents, frankly, taught me nothing about finances so I really had no foundational understanding when I entered the real world. We lived as paupers for years and years while we both put ourselves through college while raising two kids and then I entered grad school so we are only now in a position where our finances are in a better than “just surviving” situation. Its clear some think that we have grossly mismanaged this. Perhaps there’s some truth to that, but at the time it was an “any port in a storm” situation. Now our financial situation is better so we are trying to get our ducks in a row and ensure some semblance of stability. As @Tired_and_Cranky notes, if you didn’t do it yesterday, the best time to do it is today
My wife has a Roth IRA although it is not well funded due to her not working since Covid hit, our decision to put money into savings (so as to have it available if needed rather than taking a hit if we had to pull it out of the Roth), and the fact that it’s only a couple of years old. I also contribute the maximum to PERS, Oregon’s public employee retirement fund. it isn’t great but it’s better than nothing at this point. Unless I get compelling evidence to the contrary I plan on opening an “automatic investment” Roth with Vanguard and putting a portion of what we had been paying towards the car and CC into that.
I have contemplated discussing all this with a “financial planner” but we live in a small town (@StGermain we live in southern Oregon, near Roseburg) and financial planners are the Edward Jones types. I have a strong distrust of anyone who lives off of commission – “you eat what you kill” and all that. My uncle is a retired VP at BoA and I trust his advice. We have not discussed home buying with him but we have discussed investing and savings strategies.
Just a thought: you can conduct an interview with a fee-only financial advisor anywhere the the country (in the world, actually). Especially with COVID restrictions, they are very open to doing Zoom-style consults. You can email PDFs of the relevant documents.
If you have all of the info in order and ask very pointed questions, you shouldn’t need more than a couple of hours of consultation and it shouldn’t cost you more than $1000.
If I were in your position, I’d YELP a few in Eugene or Portland or even Sacramento & see who gets the best reviews. Good luck!
The 15% interest on the car loan is an indicator that your credit score is not very good and you will want to get that settled before buying a house. The difference between buying with a good credit score & a bad credit score at the price range/down payment you’re looking at is about $300-ish/month or $100,000 over the life of the loan in interest. That’s a lot of money that you could not be giving to the bank. (Of course, if you want home ownership enough, that might be worth it to you. But that’s something you need to consider. $300/month v. home ownership now.)
To drive down your credit score:
check your credit score - you’ll want to target 700+
pay off the credit cards entirely. If you can use them and pay them off in full every month and never be late on a payment, then keep using them (while paying every month in full and on time). If you can’t do that, stop using them - but do not close them. Credit scores go up with account age, so having a non-used, but fully paid off card is better than a closed account.
just pay off the car loan.
rebuild your savings - unless adjunct professors make a lot more than I think they do, you already have 6 months of savings for your current expenses. You’re going to want that + the amount for you down payment + 6 months of the costs for the new expenses of home ownership.
For homebuying:
both banks and realtors have “first home” classes where they go through the steps of home buying and explain the process and of course, how they’re the right choice for all your new home needs. Other than the sales pitch at the end, those are actually useful.
start thinking about what you want in a house - what are your non-negotiable dealbreakers and what are your nice-to-haves. Start looking at homes in your price range online to see what is realistic for your budget.
if you have friends/colleagues who are buying a house, see if you can shadow them (or if they’re ok with your asking a lot of questions about the process). While someone who bought a house 10 or even 5 years ago knows the broad strokes of buying a house, the details change. (For example, I faced bidding wars and had to adjust my home buying strategy accordingly, but the steps used back then would utterly fail to secure a home today.)
Really double and triple check if you want to buy a home - there are pros and cons to home ownership. “Traditional wisdom” overstates the pros and undersells the cons. And if you change your mind, it’s an expensive thing to back out of.
If he wasn’t planning on buying a house, I’d say pay off the loan, especially since it would be coming from an account with a terrible interest rate. However with the unexpected expenses of house purchasing, it might be good to keep the money, at least for now. But definitely refinance.
Note: he’s got tenure in the Fall, which means he hasn’t been an adjunct in a long time. Adjuncts are like temp workers. To have been awarded tenue, he was a professor for some period of time.
Echoing what many others here have said: #1- Pay off the credit card #2- Pay off the car loan #3- Wait till the housing market cools and in the meantime continue to stockpile cash
In a hot housing market there are three groups:
Winners- those who sell their overpriced home but don’t need/intend to buy another.
BreakEveners- those who sell their overpriced home and then turn around and buy another overpriced home somewhere else
Losers- first time homebuyers
If you don’t HAVE TO buy a home right now, don’t. Low interest rates will outlast a hot market and the more on-hand cash you have to buy with and not borrow will offset any type of FOMO savings you think you might be taking advantage of.
This is why you want to shadow someone. In my market right now, unless you’re prepared to put down 6 figures above asking price in cash - you’re not getting an inspection. Someone else will buy the house for more money and less hassle for the owners.
I misunderstood. And I just looked it up (google is my friend ) professors do make more than I thought they did.
If you want to see if your market is hot, check days on market, and check sale price versus asking price. In my market DOM is in low single digits, and many houses have sales prices $50K over asking.
The correct financial advice to anyone, in any situation, is “Pay off your credit card balance.”
Pay off your credit card balance. Buying a house, not buying a house, buying a boat, planning on embarking on a career as a jewel thief, you are literally ten raccoons in a human suit and all you care about is eating garbage, it makes no difference, pay off your credit card balance.
The OP’s car loan is so terrible it’s almost a credit card balance, and should be the next thing done with spare money before anything else.
Then think about a house. Not before. The OP is bleeding money in credit cards and a predatory car loan.
To reiterate - pay off them loans and stockpile cash (hang on to all the money you were using to pay credit card and car) and hang on waiting for the housing market to cool off.
Absolutely this. Thinking about buying a house before these are done is a recipe for (financial) disaster.
The implication of the terms of those loans is the OPs credit rating isn’t very good.
If they are still determined to buy a house, then after paying off the car and credit cards (absolutely the first thing to do), come up with an estimated monthly mortgage payment, including insurance, maintenance, interest, etc and any estimated monthly utility bills and set aside that amount each month less current rent and utilities and see if they can live that way for at least 6 months, if not longer, without touching the money.
If they can, that’s a sign they can maybe handle the extra financial overhead. The estimated mortgage should be made as accurately as possible. People sometimes get starry eyed over first time home ownership without realizing how much it can actually cost, especially the interest if their credit isn’t great. And they often don’t consider things like property taxes, interest payments, insurance payments, upkeep, lawn maintenance, etc, which add up like nobody’s business.
Though I’d also second (or 15th? by now) the notion of waiting. The market is ridiculous at the moment and any homebuyers could easily find themselves underwater faster. But that might itself provide a chance to try the experiment to see if they can afford the extra expenses for a while. If not, buying a home should be off the table anyway.
) professors do make more than I thought they did.