According to statistics that the Institute for College Access and Success released last month, 68% of graduating seniors had student loans last year. On top of that, the average household has more than $15,000 worth of credit card debt. The average monthly car payment in America is now close to $500. Needless to say, it’s not a surprise that most homeowners have other debt aside from their mortgage debt, myself included. Dave Ramsey is always warning his listeners not to buy a house when you’re in debt. He warns that putting yourself in that situation is just inviting bad things to happen.
I did not listen to Dave, and while I truly am glad I am a homeowner now, I can definitely see that he was right. Here’s why:
1. Stuff Breaks
During my first week in my new home, we lost power, hot water and had to get the dishwasher repaired. To be honest, we were definitely low on cash at that point having just closed on the house and moved across the country. We got through it, of course, but I know if we had been renters at the time, a quick call to our landlord would have fixed the problem immediately. But, decided to buy a house when you’re in debt changes that dynamic.
During those first few weeks of home ownership, I had occasional bouts of regret for purchasing the home. After all, we have so many things we could be putting our money towards, like the six figure student loan debt hanging over our heads. Every time we had to fix something that broke, more money went towards something besides digging ourselves out of our hole.
These days I have a $100 per month line in my budget for unexpected home repairs. If we don’t use it, I transfer it to a high yield savings account for it to grow until we need it to fix something bigger that will inevitably break.
2. You Want Your Home to Be Nice
Like typical homeowners, we want our home to look nice. We were lucky that we purchased a home with good bones and mostly updated finishes. Still, there are little things here and there that we’d like to update.
For example, we want to add some lights under our kitchen cabinets because it’s really dark in there. We’d like to replace or fix some door hinges that are loose. We want to repaint our kitchen as it’s currently a hideous deep, dark red color (hence the dark kitchen issue).
Of course, every single one of these updates, even if they are small, require money. I can’t help but remember a similar hideous red wall that I lived with in a rental for over two years in Richmond, Virginia. For some reason, because I own the home, I don’t really want to live with it forever. Sure, it’s an easy update that should only cost $50 worth of supplies at the most, but the personal finance blogger in me feels guilty when I’m not throwing every bit of spare change I have at the debt.
One part of me wants to keep my house nice and updated for when we do decide to sell it down the road and the other part of me wants to only fix what’s necessary and throw everything else at the debt.
3. Handling Unexpected Windfalls
This is related to the point above, but when you are a homeowner, it can be hard to know what to do with an unexpected windfall. This might include Christmas bonuses, a tax refund or something else.
When you get a large sum of money, it’s tempting to throw it all at your debt; however, if you’re worried about not having a large enough emergency fund for your home, you might be tempted to save it instead.
A renter wouldn’t have these same issues. To them, a large windfall would go towards debt without them having to worry about using it for home upgrades (even upgrades that aren’t ultra luxurious.)
Ultimately, when you are juggling many different types of debt, it’s hard to know where to put for your focus. For me personally, I’ve found that it’s helpful to have a line in the budget for home improvements. If I need to make a bigger home improvement, I will adjust it accordingly the following month, but for now, most of my excess cash goes towards debt repayment, and that’s the way it should be.
How do you decide what to focus on when it comes to your mortgage debt and other debt? Do you think it’s wise to buy a house when you’re in debt? Looking back, what would you do differently about how you bought your first home? What would you do the same?