SPEAKER_00 0:07

Welcome to Money Talk for Real, a podcast where I talk about making money, spending money, and everything in between. I am Nick, and in this episode, I have another listener-submitted financial situation that I want to walk through and break down. This one's a little bit more complicated, and honestly, it's where some other people seem to get stuck as well. This is someone who's not completely broke, but they're not necessarily crushing it either. They're trying to make a big life decision with their finances, but they're kind of right in the middle. They do have some debt, a little bit of savings, and they're basically just asking: should they keep saving for a house or should they focus on paying off their debt first? This is an audio submitted question. Um her name is Sarah, and she submitted this through my website, so let's take a listen to that.

SPEAKER_01 0:55

Hey, um, yeah, so I've kind of been going back and forth on this and just don't really know what the right move is. So uh me and my husband, we're both 30, we have one kid, and together we make about, I think it's around 95,000 a year. Um, after taxes and everything, we bring in like around 6,200 a month. And honestly, like we're not completely struggling, but we're also not really getting ahead either, if that makes sense. So right now our rent is about $17.50. We've got a car payment that's like $420, insurance is around $160. Gas is probably like $2.50 a month. Groceries are, I don't know, probably around $6.50, especially with a kid. We do eat out some, not like crazy, but it's probably around $3.50 a month. And then daycare is a big one. That's about $900. Um, subscriptions and stuff are maybe like $90 total. And then just like random spending, Amazon, whatever, is probably around $400. So yeah. We do have some savings though. We've got about $4,000 in like an emergency fund, and then we've been trying to save for a house. So we have about $9,000 set aside for that. So I guess the reason I'm reaching out is we really want to buy a house like within the next year or two, but at the same time, the credit card debt kind of stresses me out, and I don't know if it makes more sense to keep saving for the house or if we should stop and just focus on paying off the debt first. Because I feel like if we stop saving, we're just delaying buying a house even longer. But also I know the interest on the credit cards is probably not good either. So yeah, I guess I'm just kind of stuck on what the smartest move is right now.

SPEAKER_00 2:22

Perfect. Um, a lot of people are stressed on what the smartest move is because credit card debt is stressful. Um, she did not mention it in the voicemail, but her credit card debt is the balance is around $8,500, $8,500 with a minimum payment of $220. And she does, she did submit that she has $18,000 in student loan debt with a minimum payment of $180. They're bringing in around $95,000 a year after taxes, around $6,200 a month. If you add all of her monthly expenses, though, including the debt, it comes out to $5,370 a month. They're bringing in $6,200. So technically, they have about $800 left over each month. And what Sarah and her husband are asking is again, they're trying to buy a house in the next year or two, from what she said. And they have the credit card debt. So should the question is, should they keep saving for the house or should they stop and focus on paying off the debt first? It's a common situation amongst a lot of people. You're kind of in the middle. You don't know what to do, right? On one hand, they're doing some things right, in my opinion. They do have savings. They're not overspending like crazy. They have positive cash flow, meaning that they're making more money than they're spending each month. But on the other hand, they have this high-interest credit card debt that's hanging over them. And this is where it can get a little tricky because honestly, it's not just the math. It's the math, it's also the emotions that's tied to it. It's the timing, and frankly, it's the life goals. And if you handle this wrong, of course, you're going to regret it and possibly set yourself back. So owning a home does feel like the progress. I get it, even if it's not necessarily financially smart. But in their situation, Sarah and her husband are trying to do two big goals at one time. It's the classic kind of split focus problem. Right now, Sarah's trying to run two directions, but you can only move in one direction, right? It's hard to do both at the same time. So, in my opinion, and I'm going to give you my opinion because she wanted help and I'm trying to help. The biggest issue here is the credit card debt, period. At the end of the day, that $8,500 balance on the credit card is probably sitting at what, 20% interest, maybe? That's expensive money. And that's money that that's, you know, with credit cards, you're not only paying back the money you owe that you borrowed, but you're also paying interest on top of that. And you're paying all of this on a timeline that is in the past. You already have the thing, whatever it is that you bought maybe a year ago, two years ago. Well, now you're still paying on it two years later and you still owe the money into the future. So credit cards, this is exactly why credit cards can get a little dangerous. You're not just holding the debt, but in this case, you're actively losing money each month. So option one is for her to keep saving for the house. The pros of that would be that she's moving toward her goal and she's gonna feel the progress of doing that. However, the cons would be that the credit card debt is gonna keep growing just quietly in the background, just nurturing in itself in a negative way that you're gonna owe more. And then the next thing that would be a con here is that she's gonna be dragging this debt into homeownership. And buying a house, I can tell you, does not fix money problems. It just magnifies them, meaning, or or the lack thereof. If you don't have money problems, it will magnify the flourishment in your finances. If you have money problems, it will magnify the negativity. Option two is to pause the house savings and attack the debt. The pros of this one would be that you're gonna eliminate that high interest debt much faster and you're also gonna free up your future cash flow. The cons would be, of course, that it, you know, you're you feel like you're delaying your goal, and you might even get a little emotionally frustrated. So my recommendations here, if I'm Sarah, is I would press pause on the house savings. Not forever, of course, but just temporarily. And I'm gonna go all in on killing that credit card debt. 20% interest, which I'm assuming it's somewhere around that, plus or minus, hopefully not plus, but hopefully less than 20%, but probably somewhere around 20%. Get rid of that. Go all in on killing the debt. And I'll tell you how I would do it step by step. Number one, the $800 a month extra that you have currently, the surplus of $800, that $800 a month would now be going straight to the credit cards. The next thing is again, pause the house fund contributions. They already have $9,000 saved for their house fund. That's fine. That's great, actually. Just let it sit there. But stop adding to it for now. Don't do anything else with it. Don't move it around. Don't use that to pay off your credit card debt. That would be a diehard way, and I don't do die hard ways on this podcast. But just let it sit there. Just let it, just leave it be. But stop adding to it. Stop the contribution to it. The next thing I would try to do if you can would be to tighten up your spending, even if it's just a little bit. Again, I'm not going diehard here. Nothing extreme, but just something to speed this up. For example, you're eating out $350 a month. Again, I'm not telling you to go to zero. Other people would. That's fine. But I would say even if you can go from $350, can you back it down to maybe $200 a month? You can still have $200 to eat out. That's you can still eat out, right? Um, but you're saving $150 right there a month. The next thing is the miscellaneous. I don't know what this is. She did mention Amazon, but I don't know the other details that would go into the miscellaneous category. But $400 a month, if you can, again, if it's possible, maybe try tighten that, tightening that up from $400. If you can get that down to $250, maybe that'd be great. That'd be another $150. So between the eating out savings and the miscellaneous spending savings, that frees up another $300 a month. Well, they already had the $800 a month extra, the surplus. And if they can tighten this up, even just $300 a month, which seems reasonable from the limited details that I have and that I know, that's another $300. That puts them at $1,100 a month extra. That could all go towards the debt. And if you can put $1,100 a month towards the debt, the balance is $8,500. So if you can throw $1,100 a month at a month at it, that $8,500 is gone in under a year. Less than a year, you're out of debt for the credit cards. The student loans may be a separate conversation, but the credit card debt is going to have the highest interest payment, I believe. So once again, get that debt gone within a year, $1,100 right there. Once that credit card debt is gone, now they can free up the $220 a month minimum payment on it. They still have that $1,100 momentum going. And now they can save really fast for a house. Way faster than they were before. You still, again, student loans make the payments on those, but it doesn't have to be attacked as quickly, in my opinion, as the credit cards. Move fast on saving for the house. Once the debt is gone, you can build the momentum and you're going to save really fast for a house. Here's the key takeaway. You don't need to do everything at once. And I think that's where some people get frustrated and maybe a little bit of anxiety. You think, oh my God, I have all these things I need to do. Let me do them all. And by trying to do them all, you're doing nothing. You need to do trying to do everything at once is what keeps people stuck. You need to do one thing at a time, focus. And what leads me to my next point. I know there's people listening right now that you may be thinking, well, that's literally us. We want a house as well, and we have some debt too. Well, number one, simplify, people, and focus on what you want one thing at a time. Knock out one problem at a time. Simplify and focus. If you focus and do one thing at a time, you're naturally going to simplify. Okay. If you've got a situation like this, please send it in. I enjoy talking about this. And Sarah, if you're listening, I would love to talk in more detail. If this did not fully answer your question or fully help you out, send me an email. We can talk privately off the show. Um, but I do enjoy the voice, the audio recordings like that. You can send yours in at moneytalkforreal.com. Click on the debt help link. If you're not comfortable sending in the audio version, you can also just type all of your information in. You can absolutely stay anonymous and submit your stuff. I will break it down just like this, and I will legitimately try to help you the best that I can. All I need to know is your income, your expenses, and what decision that you're stuck on, and I will figure it out from there to the best of my ability. The more details you can submit, the better. But again, that can all be done at money talkforreal.com slash debt help. That's money talkforreal.com slash D E B T H E L P. Money gets way less stressful when you stop guessing about it and you start making clear decisions. Thank you so much for listening. Please leave a five-star review and I will catch you on the next episode. This is Money Talk For Real.