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Should We Deal With Our Old Debt or Use Our Cash to Build a House? – Shane

“Dear Steve,

newly wed 30yo male. i have around 95k in debt…. Around 70k is student loans from sallie Mae. 30k of which is co signed for my wife and her brother. all of which have defaulted…..The rest is made up of a reposessed vehicle 4 yrs ago..15k.. And various credit cards maxed out. 10-12k.my wife and I have been saving to build our own house and have 70k saved up. But the house we want will cost 150k… I need to get your opinion about where I should allocate this money we saved so that we can either get a construction loan if we use it to pay off debt, once our credit has increased or if we should just allocate it all to the house as a “down payment” to ensure our approval and once we have house built and it will have instant equity of around 90k…..then we can sell it and pay off the loans in full. What’s your opinion in my situation?

Shane”

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The Answer

Dear Shane,

Hopefully you learned the lesson to never, ever, ever, ever cosign.

On paper the house plan sounds fantastic. But I’ve yet to see one work out as planned.

Quite frankly with the credit carnage your credit score must suck. If you want to get the lowest cost loan and mortgage so you can better afford this property it would make sense to clean up the past wreckage now before you start moving ahead and wind up with liens on the property.

A smart creditor will monitor your credit report and the moment they see the new mortgage all they’d have to do is hit a couple of keys and see you’ve got value in the property. Then sue you can go for the lien. It’s a risk you take if you decide to not address the old debt.

The logical path from my point of view would be to use the cash on hand to settle the old repo deficiency and credit cards. You could then pay down the Sallie Mae debt and get that back on track. As long as that is in default fees and interest are building on that.

If you would like to talk to someone that could inexpensively coach you through settling your old debt yourself and the ramifications of that approach I would suggest you contact Damon Day, Consumer Recovery Network or Debt Relief a la Carte.

Unless you tackle this financial mess, your credit is not going to increase and your loans are going to way too expensive.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

Should We Deal With Our Old Debt or Use Our Cash to Build a House?   Shane
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Shane

    Last option I thought of was to start a LLC and get the construction loan in its name. What are draw backs?…and by the way our credit doesn’t “suck” it’s just not the best it could be. Mine is 587 hers 601. And I’m in the construction industry so I have my numbers pretty well battened down to what it’ll cost to build a house…done it many times…. As well as contracts with my subs to remain under a set budget per trade.

    • http://GetOutOfDebt.org Steve Rhode

      Maybe you object to the word “suck” but at 587 yours is in the “Poor Range” and 601 is 1 point above that in “Not Good.”

      If you start an LLC the chances are most likely they will ask you to personally guarantee the loan anyway so what does that get you?

      • Shane

        Lol you are correct that it is not the best. But I have seen way worse….as I’m sure you have as well. And in regards to the personal guarantee….yes they will but I have built a relationship with our local bank here in my line of business and have perfect credit with them. I have already gotten approval for the construction loan. With a significant “down” of course.

  • Shane

    I had thought of the lein issue….plan on putting only my wife on mortgage so they can’t put a lein on it for me…. After we pay her loan….But there are 2 reasons I wanted to pursue this is to not only build wealth but her credit and ..our lease is up in aug and we have to vacate and I’m tired of paying 2000 a mo in rent when it could go to loans or to pay off new house quicker… I plan on paying the loans when I have a significant amount saved up when we are not in a pinch for getting a house for us and 3 kids.

    • http://GetOutOfDebt.org Steve Rhode

      Were you looking for me to agree with your approach or give you my opinion?

      • Shane

        Just looking for an outsiders point of view of the whole thing. Again these are just my ideas. Not saying I’m going forward with any of them at this time. I just wanted to know your thoughts.

      • http://GetOutOfDebt.org Steve Rhode

        I’m always a big fan of taking care of the past before making the future more complicated.

      • Shane

        Very well. I appreciate the input!

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