Yahoo Finance Denver man wants to use savings to buy a home instead of paying off $17K in debt. Ramsey Show hosts weighs in
While millions of Americans are delaying (or even completely abandoning) their dream of homeownership, one man has set his sights on one of the most expensive areas in the country.
Ronnie, from Denver, Colorado, is married with a toddler. He and his wife, who are currently renting, are looking to buy a house. He called into The Ramsey Show to seek financial advice.
During the episode, Ronnie told co-hosts Ken Coleman and George Kamel that he doesn’t want a townhouse or condo, despite the fact that he lives in an expensive city. “I don’t care what you want Ronnie, this is about reality,” Kamel explained. “You can’t afford a one million dollar home!”
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Ronnie also revealed that he and his wife have about $10,000 in credit card debt and owe roughly $7,200 on her car — yet they have a hefty $83,000 in savings. Kamel suggested Ronnie prioritize paying off the debt immediately, but Ronnie has it ear-marked for buying a house.
“What are we doing, man, let’s clean this up,” Kamel said. “There’s a time and a place to be a homeowner and you guys are so close, but we gotta do things in order so that this is a blessing and not a burden.”
Ronnie’s situation highlights how the temptation of homeownership can put many families into precarious financial situations.
Stretching budgets for a dream house
Home prices across the U.S. have spiked 40% since the pandemic, according to data from J.P. Morgan. A tight inventory and higher interest rates are adding additional pressures to this ongoing affordability crisis.
Some American families have reacted to this crisis by delaying, or even abandoning, their plans to buy a home. A survey conducted by The Harris Poll found that 61% of renters were worried they would never be able to purchase a home.
However, other families have reacted to this crisis by stretching themselves thin and overleveraging. In 2022, more than 42 million households were “cost-burdened” — meaning they spent more than a third of their income on housing, according to Harvard’s Joint Center for Housing Studies.
Ronnie could be at risk of becoming part of that latter cohort due to his reluctance to use his $83,000 down payment nest egg to pay off the family’s $17,000 in combined debt. Because he’s so set on buying a house (as opposed to a more affordable condo or townhouse), he’s losing sight of his priorities. As Kamel reminded him, the houses in Denver can range from $700,000 to upwards of $4 million.
Ronnie claimed he was holding onto these balances to preserve his credit score, but Kamel wasn’t convinced. “Credit scores are one of the dumbest things on planet earth,” he said.
He offered a better, and financially safer, path to homeownership.
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Practicing patience
At the end of 2023, the average credit card interest rate was 21.47%, according to the Federal Reserve. Getting rid of this pile of debt could significantly improve Ronnie’s financial position. Paying off his wife’s auto loan would further bolster their family’s security.
Kamel estimated that Ronnie could pay the $17,000 for debt repayments with the $83,000 in their savings account and set aside roughly $25,000 as an emergency fund for monthly rent payments and groceries. The rest of that balance — $41,000 — could then be deployed into a high-yield savings account. As Kamel pointed out, some of these high-yield accounts offer interest rates at 4% or 5%.
“You’re struggling with patience,” Coleman told Ronnie. “Welcome to the party, man… it is what it is. It’s worth waiting on. I think you need a perspective change.”
Saving and compounding his wealth this way could help Ronnie build up a larger down payment and eventually get his family into the housing market — preferably in a less expensive city or state. This patient approach could significantly lower the financial risks of buying a home for Ronnie and his wife.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
