Managing Credit Card Debt while Saving for a Down Payment

Saving for a Down Payment
by Scott Bilker

Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!

Scott,
How do you save money to buy a home when you are swamped with credit card bills that just seem to suck every last bit of savings?--Darryl

Answer
Darryl,

I know exactly how you feel since I was in that very same position at one time.

First of all you need to be sure that your credit card interest rates are as low as possible. By "low" I mean below 11.9%. There are many excellent credit-card offers available from numerous banks, which make the rates very competitive. Look through your junk mail and read the fine print in some of those offers. Start using the 0% offers and track the dates when they expire so you can be sure to transfer your balance before the rate is increased.

Once you've minimized your interest cost, you need to make saving for that house a priority. The way I saved while paying my credit card bills was to make minimum payments. That's right, it's one of those exceptions to the pay-the-most-to-your-credit-cards- first-rule.

In this case, to save for the down payment of your house, you make the minimum payments to your credit cards and bank the difference. The reason is that you need to save your own money to use as a down payment; you cannot cash advance money from your credit cards to buy a house. Well I guess, technically you could, but most likely you won't be given a mortgage if the bank learns that you’re buying a house with your credit cards.

The strategy here is that you’re going create extra money by paying less each month to your credit cards. Many times banks will give you an opportunity to skip a payment. That's the perfect time to save that extra payment in a bank account toward your down payment.

Many people would criticize me for suggesting that you pay less to your credit cards because you're going to pay a little extra interest. However, this interest cost is the fee you pay to be able to get the cash for the house. It was worth it for me and everything turned out just fine.

Good luck and please let me know how things go!

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