Planning can help you save for house

Q: My husband and I are renting a condo but want to purchase a house. We have about $11,000 in a consolidation loan (did a consolidation to stop using credit cards and it's been great. The interest rate is lower than the credit cards). We have $12,000 in savings. Would it make more sense to keep paying the loan (the minimum is $350 a month, but I usually pay $700 to $1,000) and save what we can, or take the money from savings and pay off the loan and then build that back up (this would eliminate all debt)?

A: This is what I would do:

• Calculate how much you need for an emergency fund of at least three months of living expenses (rent or mortgage, food, utilities, cable, cell, etc.). This will give you a benchmark of how much you need in this fund before you even think of buying a house.

• Designate about $1,000 to $2,000 for a "life happens" fund for expenses that come up, such as car repairs. You can create it by taking the money out of the $12,000 you've saved and putting it into another account.

That leaves you with $10,000 of the money you've saved. From that do the following:

• Set aside $5,000 as the beginning for your emergency fund.

Considering the job market, it's best to have some cash saved up. But you can stop saving for this account when you reach the goal of at least three months of living expenses.

• Take the remaining $5,000 and pay down the $11,000 on the consolidation loan. That will leave you owing $6,000. If you are paying upward of $1,000 a month on that loan, you could be done with it in six months.

Once you've set up the life happens fund, met your goal for the emergency fund and paid off the loan, you're ready to start saving for a house.

Q: I have two credit cards, one with a balance of $1,700 and the other at $2,400. I have a personal loan of $2,800, a car payment of $312 a month with a $14,000 balance and a student loan of $15,000, which is now in deferment. I want to start the process of paying these bills off to purchase a house in a year.

Where do I start? I make at about $1,200 bi-weekly after taxes. I have $3,600 in savings.

A: That's total debt of $35,900 and total savings of $3,600. Please don't see what I'm about to tell you as dashing your dreams of being a homeowner, but you should start by putting off the idea that you will be in the position to buy a home in one year. You have too much debt to deal with first:

• Work on increasing the emergency fund.

• Work on building a life happens fund.

• Start aggressively paying off your debts, beginning with the debt with the lowest balance. Make the minimum payments on the other debts. When you pay off the debt first on the list, take that money and apply it to the next debt on the list and so on.

• Get your student loan out of deferment and make minimum payments as part of the debt reduction I just laid out. Go to www.ibrinfo.org to see if you are eligible for a plan to make the payments manageable.

Follow these steps and you'll be putting yourself in the position to have a nice cash cushion, no debt and can start the process of buying a home.

Readers can write to Michelle Singletary in care of The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com. Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible.

Student Loan Consolidation After Graduation–Debt Management Plans To Ease Repayment Burden

Numerous students turn to student loan consolidation options after graduation as a way to ease the burden of repaying student loan debt and manage these debts in a way that will allow them to afford their monthly payment obligations. Student loan debt is one of the rising sources of debt which many Americans are combating, and there are some indications that student loans are competing with credit card debt for the highest debt obligations that individuals are repaying.

However, questions over student loan consolidations have arisen as there are some advisers who question whether consolidating debt of any kind is wise. Yet, there are those who feel that, with the current job market, students who have various student loan debt obligations may run the risk of defaulting on their debt or missing payments, which can do damage to their credit score early in life and this would obviously make a graduate's financial life more difficult down the road.

A poor credit score can make financing difficult like when an individual attempts to buy a home or, in some cases, bad credit scores have reportedly been the reason that some job seekers have been denied an employment position. Obviously, graduates wish to avoid missing payments on student loan debt and the financially savvy graduates who are repaying debt from college loans wish to erase these obligations as quickly as possible.

Yet, there remain some advisers who feel that consolidating debt, like student loans, can cause the overall costs that one must pay to rise thanks to an extended repayment timeframe and interest. While there are student loan consolidation plans, like those on federal student loans, which can come with a low interest rate, a higher principle amount on a consolidation loan can lead to higher overall costs, but for students who simply cannot meet multiple college loan repayment obligations, consolidation has been their only option.

Financial advisers and student aid counselors alike have suggested that graduates look at their personal student loan situation and weigh the options as to which means of repayment will be best. It goes without saying that students who have a small amount of debt or only a few student loans may be able to combat these debts separately and erase them in a timelier manner since paying off lower principal amounts can be easier.

Students who can erase debts separately through smart budgeting and repayment habits may be in a better position to find student loan debt relief than if they had consolidated their debt, so these options must be weighed before a student loan debt repayment plan is chosen. However, graduates who have consolidated student loan debts have been able to erase their debts in a shorter amount of time by simply paying more than the minimum monthly payment requirement on their consolidation loan.

The opportunities available to graduates when it comes to erasing their student loan debt will depend on their income, student loan debt situation, and basic financial practices. However, advisers have, again, suggested that by simply reviewing one's student loan situation, the most affordable plan can be chosen which will allow a graduate to erase their debt at the lowest cost possible.