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Hold off paying student loan to buy a house

Dear Dave,

Fourteen months ago, my wife and I set a three-year goal of being out of debt and buying a house. Last year, we paid off $12,000 in debt, and now we have about $10,000 left to pay, excluding a car lease with two years left on it and a student loan of about $40,000.

By the end of this year we will be debt free except for those two payments. We really want to get into a house as soon as we can, and I don’t want to wait two more years for the student loan to be paid off. Our household income is about $80,000 per year, so the student loan is manageable for us, and my question is this: Is it OK for us to go ahead and get the house? What do you suggest?

Steve

Monroe, N.C.

Dear Steve,

I would wait until I was debt free to get the house. And on top of that, I would sell the car as well. You should get out of the car fleece so that you could attack the loan harder and be out of debt faster. Get a cheaper car that you can pay cash for, and then get this debt paid off. If you are serious about this, it shouldn’t take you three years to be out of debt.

The average household income in America is $40,816. If you just lived “average” you could be out of the student loan in a year. Right now, you are living a high lifestyle, and you should trim that down, for now. I’m saying you should not take a vacation this year. Don’t eat out. For one year, you should limit yourself. People will probably make fun of you, and if they do, then you know you are on the right track.

If you are serious about this, you should be as intense about it as the little gazelle on the Discovery Channel is when he is trying to get away from the cheetah. That little guy is working like crazy to avoid becoming someone’s dinner. You need to be working that hard to get out from under this debt or it won’t go away, trust me.

You need to get fired up. I would get rid of the student loan before I bought a house, and I would do it fast because you want that house pretty badly. Work hard at this debt, and you can get out of debt and into your house in no time. But the length of time it takes for you to do this is directly related to the intensity level that you put into getting out of debt. Now go make it happen.

Dave



Plugging the leaks in your budget

Dear Dave,

We have been listening to you for a while now, and have been living on a budget for a few months, but for some reason there seems to be some leaks in our budget. Five dollars here, 10 dollars there, when they are all added together, they make a huge dent in our budget. Can you give me some advice on how to plug up these “leaks” in the budget so I can feel like I am in control again?

Joyce

Nashville, Tenn.

Dear Joyce,

Great question. Ben Franklin once said, “Beware of little expenses. A small leak will sink a great ship.” This is a common occurrence in household budgeting, so let me give you some reminders on how to stretch your dollars by plugging those leaks.

When you are grocery shopping, try using the “cash only” method. Take cash for the amount you have budgeted for groceries, and then you won’t be tempted to use the debit card or a check, which doesn’t give the same feeling of letting go of your money as when you pay with cash. Also, use coupons only for those items you are going to buy anyway. Stock up on items that you use often when there is a big sale. These little things will add up.

Try eating out less. Make going out to eat a treat for special occasions only, and don’t be afraid to use coupons there, too. Drink water as your beverage, and if you want to be creative, throw in a lemon.

When you are buying new clothes, make a habit of checking the sale rack first. Shop at thrift and consignment stores, and sell the clothes you don’t wear anymore. Avoid trendy clothes – buy the durable classics that don’t go out of style.

With entertainment, use dollar-off and buy-one-get-one-free coupons whenever you can. See a matinee or a second-run movie. If you are going somewhere with a group of people, call ahead and ask for the group discount. Be creative and look for free activities to entertain yourself and your family.

Don’t impulse shop. Plan ahead for snacks instead of hitting the vending machines. Don’t go through the drive-thru for dinner, just because it is convenient, and always sleep on a decision to make an unplanned purchase, and if you still need the item after waiting 24 hours, then you can get it.

Hope these ideas help.

Dave


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