Homeownership in 2020 is a monumental financial decision. Years ago, buying a home wasn’t as difficult because debt wasn’t as big of an issue as it is today. Most younger generations have to battle student loans, car loans, and credit card debt on a large scale. For example, the average graduate of a four year university in the United States owes on average between $27,000 and $33,000 in student loans. With this many people struggling with debt as it is, homeownership might seem like a fantasy instead of a reality.
However, this isn’t the case. While the road from “debt-free to homeowner” might be a rocky one, it is certainly possible. Here are some tips to get you there.
Target High Interest Debt First
The higher the interest on the loans you owe is, the more you’ll have paid cumulatively once the loan is paid off. Additionally, high interest loans also tend to come with higher monthly payments. There are a few ways you can tackle high interest debt. First, have you considered refinancing? Refinancing is when a bank or lender essentially pays off your loan and provides you with a new one at a lower interest rate. This can both lower your monthly payment and help you pay off the loan faster.
Another way to target high interest debt is to pay as much towards it whenever you have the opportunity to. Put tax returns, bonuses, and gifts towards that loan or debt. It might not feel like it’s making a difference at first, but down the road, it will drastically affect how much money you would have paid in interest.
Create a Savings Plan
When creating a savings plan for purchasing a home, consider both how much of a house you can afford and how long it will take you to save up for a down payment. The amount that you can afford will depend on how much money you’re making/will be making, how much you owe in loan payments and bills each money, and how much you’re able to save for a down payment. Use these factors to calculate when you’ll be able to afford a house. After all of your bills and payments are made for the month, put a portion of your earnings into a savings account and the other portion towards debt. While most financially savvy people will suggest putting the larger portion towards debt, we suggest doing what is right for your financial goal.
Budget, budget, budget
If you want to buy a house down the road, now is the time to put in the work. Pay very close attention to your spending habits by creating a monthly budget. Track your bills, monthly payments, saving, and spending either with a budgeting software, a spreadsheet, or even a pen and paper. Once all is said and done, go back and find ways to cut spending. This can include getting a better rate on car insurance, lowering your internet bill, cutting out buying coffee or lunches, or really anything that you don’t need to spend money on. You’ll be saving up for your dream home before you know it!
Our Debt Free Family wants to provide those both young and old with real life advice on how to conquer debt and live a financially stable life. We hope you enjoyed this post and invite you to visit regularly for more posts and advice.