Is Your Debt Keeping You From Buying Your Knoxville First Home? Do This First
69% of Americans have less than $1,000 in their savings account, with 34% of those people having no savings at all.
Millennials ranging from 18 to 24-years-old, 72% have less than $1,000 in their savings and 31% of that group has no savings at all.
Millennials ranging from 24 to 34-years-old, 67% have less than $1,000 in their savings and 33% of that group has no savings at all.
-Data from GoBankingRates.com.
Debt is a problem for many Knoxville first-time buyers. It oftentimes prevents first-time buyers from buying the home that they want or from buying a home at all.
If you’re someone whose debt is plaguing them from buying a home, we offer some advice to start tacking your debt so you can buy your first home. This one simple step can help set your up for success.
Here’s What You Need To Do
Before trying to conquer paying off your debt, you should create yourself a small emergency fund. While this may seem to completely defeat the purpose of trying to pay off your debt, there is actually a good reason for doing this.
The thing is you never know when life can throw you a curveball. You could get into an accident and have to pay your insurance deductible. You could have surgery and you have to pay some medical bills. Or, you could need to buy a new car.
Regardless of what may happen, when you don’t have the funds to cover an emergency, you’ll only end up getting more debt if you don’t have the cash to pay for the emergencies.
So, how much should your emergency fund be?
The size of your emergency fund can vary depending on many things, like the size of your family, your monthly overhead, and whether or not you are self-employed. Based on that information, you can determine what a safe number is for your ultimate emergency fund goal.
But at the very point where you’re trying to pay off debt, the important thing is to establish an emergency fund. You don’t need to worry about trying to come up with the 4 to 6 months of living expenses that you may ultimately need for your emergency fund.
The purpose of creating a small emergency fund before you start paying off debt is to avoid accruing more debt. That way, if something unexpected happens, you’ve got the extra cash to pay for it. Ultimately, it’s your choice to come up with a number you’re comfortable. It could be $1,000 or it could be $5,000. Just be sure that it’s enough to cover some of the expenses you may need.
Why It Matters
Debt is a slippery slope. When you don’t have a savings established for rainy day funds, establishing more debt will be inevitable. At one time or another, something will happen that needs a large sum of money and you won’t have the funds to cover it. When this happens, your only solution will be wracking up more debt.
By creating a small emergency fund before you start focusing on paying off debt, you’re giving yourself a safety net. Should something happen, you’ve got the cash to pay for it. This is important to prevent yourself from gaining more debt. When you decide to start paying off debt, the first step is making sure that you don’t gain any more debt.
What You Should Do Next
Starting an emergency fund can be overwhelming when you think about all of your monthly obligations. Here are a few tips for coming up with the funds:
- Cut some extras. Get rid of the gym membership you don’t use or that additional streaming service you don’t watch.
- Get rid of cable. Instead, consider trying Netflix and Hulu.
- Sell old items. If you’ve got things you never use, consider trying to get rid of them for cash.
- Use the “extra” money you get. Birthday money or your tax refund can go a long way towards helping set up your emergency fund.
Once you’ve got a healthy emergency fund, consider these strategies for paying down your debt.
Buying your first Knoxville home is an exciting and overwhelming experience. If you’re like most first-time buyers, you may not be sure where to start. If there is anything we can do to help you in your home search, please do not hesitate to contact us. We’ve helped countless homeowners buy their first home and we’d love to do the same for you. Rick can be reached at 865-696-9002 or via email at Rick@KnoxvilleHomeTeam.Com. Kati can be reached at 865-696-1888 or via email at Kati@KnoxvilleHomeTeam.Com.
Are you ready to start your home search? Visit our home search page to get started today. Or, be sure to keep up with our Knoxville First Time Home Buyer’s Blog to keep up with the latest information about buying your first home.