Asked by Evylina Ruggiero  |  Submitted August 29, 2015

I am building a modular. I have a fair amount of savings to pay in cash, but I also have a lot of credit card debt with high interest rates.

Should I use savings to pay off majority of credit cards after which I will no longer have cash and would need to take a loan to pay for the modular?

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  Answers  |  2

August 31, 2015

Hello Evylina:

Your question has elements of both mortgage financing and financial advisement. I can help a bit with the former.

What you would need to consider are really the sides of the same coin. You will need to have a certain amount of cash for the modular home whether that's for down payment, closing, or both. At the same time however, if it comes down to you qualifying for a loan, you will need to have the debt-to-income ratios to qualify which is directly affected by the credit card debt you have. Consider that mortgage rates are significantly low right now and probably a lot lower than your credit card rates. You also have the opportunity to "fix" that mortgage rate, unlike the credit card interest rate which is variable.

It may serve you well to talk to a financial adviser here on MoneyTips in regards to this dilemma. You may find that he/she will advise to pay off high interest credit card debt...or at least some of it, leaving you with some cash reserves (which will also be needed for a mortgage loan)...since the money to purchase a home these days continues to be relatively cheap and the home will likely appreciate over time.

$commenter.renderDisplayableName() | 09.24.17 @ 01:51


August 31, 2015

Hi - I take this to mean you plan to build (or are already building) a modular home. Here are the questions I would be asking: Do I own the land outright?, Yes = good, no = "what will it take for me to own the land"? Can I pay cash for the entire home plus the installation of all utilities?, Yes = good, no = "what will it take for me to pay cash for everything"? If the answer to BOTH of these question is "yes", then the home may be a good idea. If the answer to either of these questions is "no", how will I finance the difference? And, if I have to finance some (or most or all) of the home purchase, how will that additional debt payment fit into my budget with my other debts and living costs? In other words, can I make payments on required debt financing plus my credit cards plus my living costs? Offhand I would say you should pay off your debts first and then save up the funds needed for the home.- at least enough to the point you can get reasonable financing costs for the home. I've seen a lot of people get in financial trouble i.e. foreclosure and/or bankruptcy because they "just had to have a house" but didn't do their homework ahead of time to determine if it was truly affordable. Your homework is to put it all down on paper to see if it is affordable. - don't rely on "mental accounting" or "magical thinking" that it will "work out" - you need to KNOW if it will work out before going forward. Good luck!

$commenter.renderDisplayableName() | 09.24.17 @ 01:51


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