“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.
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