[kathleenisawesome]

Hello!

My husband and I just got married less than 3 weeks ago. We received several cash gifts from guests at the wedding. We also went on a 2-week long honeymoon (rather expensive to Scotland and Ireland - wanted to get it done and meet family there before having kids!). We are now at the point where we need to decide what the best thing for us to do with this money would be, and our preferred banker is on holiday for almost 3 weeks so we are unable to discuss it with her until then. I am just looking for some preliminary advice on what to do with the money - or perhaps we should just do nothing for 3 weeks until we see the banker?

Our current situation is that we have more than enough RRSPs savings right now to put a 5% (or more) down payment towards our first house. We calculated how much of a mortgage we can afford online based on our income and then figured out what sort of down payment we would need based on that amount. We also have a personal loan we took out before the wedding (9% interest), as well as 2 personal credit cards. Some of our wedding gift money was intended to be used for our honeymoon, but because we left right away we didn't have time to do anything with any of the cash gifts. The money stayed at home while we used our own cash and credit cards. Combine that with payments we made for vendors a week before the wedding and we have almost maxed the cards out after the 2 week period away, but we have all the cash gifts sitting in the bank now untouched.

We have enough wedding cash gifts to pay off the credit cards entirely (both have 20% interest) but it would leave nothing left for anything else. Considering we already have a down payment saved up in our RRSPs, this could be an option to save us more on interest in the long run. But then we have to consider closing costs and extra fees if we are able to purchase a house within the next 6-8 months. We definitely have the ability to save up some more before then for closing costs (should have another 4-5k saved within the next 6 months), but we could also just save some of our wedding money and have it right away.

Our credit score was good enough to have no issues getting the personal loan earlier this year, but I do know having more than a 60% balance on credit cards negatively affects your score and we would like to apply for the mortgage soon. I have read that if we are hoping to get a mortgage sooner than later we should pay credit cards down to at least under 60% value of their limits ASAP. This would take about half of our savings money to get the cards to that point. We also aren't sure what impact the personal loan will have on getting a mortgage, and if we only use half the money for the credit cards we could use the other half of the money for the personal loan if there is concern they won't give us a mortgage on top of the loan. It wouldn't be enough to pay the loan off, but it would put a chunk into it.

In short, we've narrowed down our options to this assuming we don't have issues getting a mortgage:
1) Pay off all credit cards, use RRSPs for down payment, save another 5,000 for closing costs before purchase, and continue to pay loan gradually each month.
2) Pay off half of credit cards, pay off some of our personal loan, use RRSPs for down payment and save for closing costs.
3) Use the full amount of money to double the down payment and have closing costs covered, and just pay off the maxed out cards and loans gradually as we normally would each month. (this seems the most unrealistic as it would be harder to get a mortgage with maxed out cards and a loan, although it'd save us interest on the mortgage over time if it went through)

Anybody have any advice? Any recommendations based on wanting to get a mortgage approved asap? Or any other options they suggest?

Thanks!

 

[james4beach]

I think the highest priority would be to pay the credit cards, with those high interest rates. There are just poison to your financial health.

Beyond that, it sounds like you are somewhat financially stretched. You're carrying loans already and now talking about buying a home, possibly with a relatively small downpayment. Have you thought about delaying the purchase of the home? Why not rent an apartment or townhouse, keep your costs minimal for a while, tackle your existing debt, and accumulate more savings?

Renting for a while would also help you develop budgeting and control your expenses. That could help make your money go further, and set you up on more solid footing before buying a home.

We have enough wedding cash gifts to pay off the credit cards entirely (both have 20% interest) but it would leave nothing left for anything else.

Just being honest here: that's a sign that you're (trying) to live beyond your means. If you pay off the credit cards, but then still have other debts and don't have enough cash, then you probably don't have enough money to buy a home yet.

PS: the banker is motivated to get you into additional debts (and mortgage). Their advice may not be in your best interest. Just because they say you can "afford" a house doesn't mean it's true.

 

[OnlyMyOpinion]

Welcome to CMF.
I agree with James - pay off the credit cards fully now, then pay off the personal loan, then become more patient and save a downpayment (and 5% is too little) rather than tapping your RRSP.
Anything less/stretching your finances as a new couple, is not likely to work out well - make sure you are both on the same page wrt to saving.
Oh, and don't visit your banker. Their job is not to help you, it is to help themselves and their bank.
Finally, enjoy your new partner and life together - live on love for a while, while saving, rather than on credit.

 

[hboy54]

If I understand correctly, you have credit card debt at 20% and other debt at 9%. Pay all this down now. Almost 100% of investors over a whole lifetime of investing would kill for a 9% after tax return.

Buying a house in 6 or 8 months is speculative and paying high interest rate debt now is for certain a good move.

 

[lonewolf :)]

Kathleen your trying to make it to complicated & your banker is not going to tell you to KISS by spending less money then you make.

When I was in a local credit union with my mom her adviser told her I knew the golden rule to financial wealth which he said was to spend less money then you make.

A bank financial adviser would never tell you to follow the golden rule in regards to wealth with money.

The banks are not your friend. Ditch the bank join a credit union as there is no conflict of interest. Credit union is member owned.

Not a good start to your marriage going on a trip that was beyond your means. Keep it up & your marriage wont last long

 

[OhGreatGuru]

The usual advice is to pay off the highest interest rate debts first.

 

[AltaRed]

Absolutely pay off the highest interest rate debt first as already articulated by others! And set up a 6 month emergency fund in a HISA (could be a TFSA where this is kept so interest is tax free). So in decreasing order...

1) Get rid of credit card debt first and always pay of the credit card balance each month thereafter. Don't carry a balance unless it is an absolute crisis/emergency....and even then, bang your head against the wall if you do that
2) Pay off that personal loan and never take out such a loan again.... or do the same thing as in 1) above
3) Accumulate an emergency fund in an HISA for 6 months of expenses, e.g. to cover a loss of job, sickness or some other financial crisis
4) Try to save enough for a 20% down payment on a property to avoid the need for more costly CMHC insurance. 5% down payments do NOT cut it any more. Forget that idea forever.

As suggested by others, don't be in a hurry to own a 'home', condo or otherwise. Having to scrape into a 'home' and then having it essentially bare of furnishings because you cannot buy (with cash, not credit) a chair to sit on is no fun. Create some breathing room so that you are not scraping for nickels.

 

[tinypotato]

I'm going to assume the original post was a real person with a real question (and not a troll post trying to elicit a response).

All the responses above are bang on. I don't want my response to sound arrogant or mean spirited, but sometimes getting the honest truth early is best...

*** Pay off the credit card first. Do not EVER EVER EVER carry a balance on the credit card unless you absolutely have to (e.g. only if the funds are needed to save someone's life). Honestly, it's a bit concerning that people even have to ask the question. Credit cards charging you 20% interest. Paying it off should be blatantly obvious.

*** If you only have a 5% down payment and have other personal debt it means you are not ready to buy a house yet. That's just the reality. Save up 20% AND another 5% on top of that for emergencies...then you can START to think about home ownership.

*** Do not EVER EVER EVER take out a loan or carry a credit card balance in order to fund vacation, toys, other consumer products. Unless, you have a goal of being broke and working at your job FOREVER.

The good news? I assume you are relatively young given the recent marriage and type of questions asked. This means you are finding out this information early and can change your behaviour and establish a plan.

Use your current situation to your advantage:

1. Keep your expenses LESS than your income (you mentioned you can save 4-6K over the next several months...keep this up...)
2. Invest the remaining amounts in a balanced portfolio
3. Let the $ compound over time

 

[marina628]

RRSP gives you $25000 each for a down payment ,depends on what home you plan to purchase if that would be enough but definitely kill the credit cards .

 

[kelaa]

If you feel you need to borrow from the credit card companies to keep your financial flexibility, you can think about promotional balance transfers. I applied for one at 1% for six months for instance from PC Financial.

 

[AltaRed]

If you feel you need to borrow from the credit card companies to keep your financial flexibility, you can think about promotional balance transfers. I applied for one at 1% for six months for instance from PC Financial.

That is just another terrible habit, just like trying to stay ahead of one's creditors by moving in the night. What is needed is focused effort to get rid of all that costly debt, build an emergency fund and enjoy floating on the pool rather than treading water.

 

[My Own Advisor]

Welcome to CMF as well....

I agree with James and others....

1. pay off the credit cards fully.
2. after #1, pay off any personal loans.
3. after #2, set up an emergency fund for ~3-6 months in cash for the "what ifs" in life.
4. after that is done prioritize any house savings vs. travel savings vs. long-term savings for investment purposes inside your TFSA, RRSP, etc.

1, 2, 3 and 4 keep most of us in CMF rather busy

 

[Longtimeago]

All the advice above is right on. The question really is are you ready to hear what fiscal responsibility is really all about. It is not about getting what you want now.

If you were fiscally responsible, you would not have borrowed money (presumably to pay for your wedding) to begin with. You would not be thinking about buying a home in the near future. You certainly would not be asking whether you should pay of your credit cards or not. That's like asking, should I take my hand out of a meat grinder or not?

But it all comes down to are you willing to listen or not.