Sunday, July 11th, 2010

Selling home, making a profit – better to pay off credit card debt or put money into new home?

credit card debt
Cookie On My Mind asked:


I have some credit debt left and I’m wondering if I should put the extra money I make from selling my home into the new house I’m purchasing or if I should go ahead and pay off the credit card debt. What is a smarter decision?
Just wanted to say I’m not late on my credit card bills, just wondering if I should go ahead and pay them off in full right away

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9 Responses to “Selling home, making a profit – better to pay off credit card debt or put money into new home?”

Bogart Says:
July 11th, 2010 at 3:30 am

Pay off the credit card debt– the house isn’t going anywhere, so there will be plenty of time to work on that. The credit card debt will just linger like a bad wound. Get rid of it– you’ll feel great!

j c Says:
July 11th, 2010 at 4:48 am

Pay off the credit card. That is the worst type of debt to have, period. Cut up your cards, then buy a new house that you can afford. Whatever you do, please don’t get yourself back in the hole of CC debt.

gcruik Says:
July 12th, 2010 at 7:37 pm

Always pay off credit card debt, and then do not get behind again ever!

hurt86 Says:
July 13th, 2010 at 6:43 am

I think that you should pay off your credit card. Its smarter. That why when you purchase your new home you have one less thing to worry about. Its better to get your credit straight then get something new and still have old problems. Also you can get better loans and finanical support if you show that you can take care of those old problems

LorenzoAE Says:
July 16th, 2010 at 8:19 am

The real question is where do you get the most for your money. If your real estate goes up at a greater rate than your credit cards, that would be an okay investment. However, that is rarely the case. The interest rate on your credit cards is almost always higher. And, it doesn’t appear that you can’t get the home loan without putting in this extra money, so why put more money into the real estate than necessary. You are leveraging your down payment to get whatever gain you might get off your real estate already.
Rank all your debts, from highest interest to lowest. Put a value on what you THINK your real estate may increase over the next year too.

For example:

Credit Card #1: APR 22%
Credit Card #2: APR 14.9%
Auto Loan: APR 9%
Student Loan: APR 6.8%
Home Mortgage: APR 6.25%
Appreciation on Real Estate: APR 4.1%

Then start at the top of your list (which obviously may be different than this one.) Begin by paying off the item at the top, and start working your way down. When the best thing left is your expected appreciation on your real estate, that’s the only time you should be putting extra cash into it.

Final word of advice: Get out of debt, and stay out! Only if you have no debt can you enjoy the freedom of being a truly free person. Debt binds you–even real estate debt.

togashiyokuni2001 Says:
July 17th, 2010 at 12:06 pm

In terms of raising your credit score, if you get your credit card balances below half their limits, then your scores will increase. In terms of financial practicality, it’s better to pay off credit cards, because the interest is higher than home mortgage interest, and it’s not tax-deductible. I wouldn’t say close the credit card accounts, because they’re good to have in case of emergency, and you need the open tradeline to increase your credit depth. My suggestion would be to pay off the credit cards as much as you can, while still keeping enough back for a 20% down payment on the house, so you won’t have to pay MI.

glenn Says:
July 18th, 2010 at 9:38 am

I sold a home to a single lady a few years back and she had several thousand dollars in credit card debt.

I told her the same things these people are telling you–pay off your credit card debt because it is much higher interest.

Cynthia told me, “Glenn, I know myself to well. I will always have that credit card debt, if I pay it off now I will charge it back up to that level and have the debt on my house and the debt on my cards.”

She was right. If you are going to use the money to pay off your cards then promise yourself not to let that happen again, or you have wasted your money.

mcmufin Says:
July 20th, 2010 at 10:04 pm

Put the money into the new home. Otherwise, you will pay federal income tax on it, and possibly state income tax. After you close, take out a home equity loan for the amount needed to pay off the credit cards. The interest on the home equity loan is tax deductible, and the interest rate will be much lower.

Finally, cut up the cards once they are paid off!

teran_realtor Says:
July 21st, 2010 at 7:47 am

Have you lived in it for at least 2 of the last 5 years? If so, there’s no capital gains tax from the IRS, and the money is yours to spend as you wish.

Glenn is correct – This all depends upon what you’ll do with these newly cleaned up credit cards….. It’s a falacy that people can get out of debt by placing all their credit card debt onto their house. They usually run up their cards again in a few years and are then worse off than before.

Put the money to the house. Start paying EXTRA to your credit cards. Start cutting up your credit cards. Then start sending extra to your house.

FREEDOM!!!!!!

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