Whats Better--paying Off A Tax Lien Or Credit Cards?
Heres the dilemma I have; I have 4000 dollars saved that I can use to pay off (or down) some credit cards, but I also have a tax lien of apprx. 4000 dollars which I am paying on. I'm now leaning toward paying like 4 credit cards off entirely, and since Im already paying on my lien, I could have this one paid off by March, when I will be ready to purchase my home. Decisions, decisions; any thoughts?
When you try to get mortgage to purchase your house, the lender will most likely make you pay the tax lien, if you still have it at the time. So, it is better for you to pay the lien off first. The lender will also closely look at your DTI (debt to income ratio). For FHA, 40% DTI, for Comforming 45%, and for BC loans 50% (depends on the program, but most programs allow 50% DTI) These are only target. If you have exceptionally good credit, or the other compensating factors, the lender will allow highter DTI. So you should try to pay down the credit card as quickly as possible. I know it's not easy. I am trying to pay down my credit card balance by $1000 every month too.
brucet60,
Pay the Tax Lien 1ST....
....they can come after YourREI....if they want to...
The CreditCardCos. can't....
...but pay them also...even if it's just the minimum...after that...PayUmOff....
....as always,
GoodInvesting, Rocky
What are the interest rates on each one? What are the laws regarding liens in your state? When can the holder come after your RE?
How much equity do you have in your home? If you can refinance and consolidate you'll be caught up, have a lower interest rate, longer ammoratization, and more money to work with.
Call up your creditors and ask them if they'll accept say 75% of the money if you can pay cash now. I think you'll be surprised at how many of them will work with you.
I don't know what your credit is like, but there are all kinds of cards out there with 0% balance transfers for a year. Move your money around and take advantage of that.
Be smart about how you pay them down. Don't risk your home...after that, pay off the highest rate loans first.
My suggestion:
Pay the credit cards and CLOSE THEM! DO NOT LEAVE THEM OPEN!
Then, pay the extra that you were paying on the CC's on the tax lein.
WHY?
The CC's are costing you money every month. The lein's not.
You're planning on paying everything by March. You'l pay $600 or so less by paying the CC's first.
If you leave the CC's open, not only will they tempt you, but they will hurt you when you apply for the loan! You may have too much open ended credit.
The credit card companies will try to entice you with a lower interest rate, higher credit limit, yada yada yad. DON"T FALL FOR IT!
IMHO, you'll be much better off this way.
Good luck
Ronnie