We are already $38,000 in debt. Is buying a house out of reach?

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeFP AnswersPersonal FinanceDebtWe are already $38,000 in debt. Is buying a house out of reach?FP Answers: You don't have to give up on the dream but protect it by getting high-cost debt under control firstLast updated 0 minutes ago Existing debt affects how much mortgage a lender may eventually approve. Photo by Getty Images/iStockphotoWe independently select everything we recommend. Buying through us may earn us a commission, which supports our work.Q: My partner and I want to buy our first home one day but between a few credit cards, a car loan, a sizable overdraft and three payday loans, we are carrying about $38,000 in debt. We have started wondering if consolidating everything into one loan would make more sense than saving for a down payment right now. How do we decide what comes first, or does consolidation change the answer? —JordanTHIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountFP Answers: With $38,000 spread across various types of debt, the first job is to get the debt under control before trying to build a meaningful down payment. That does not mean giving up on buying a home; it means protecting the goal from the kind of high-cost debt that can keep it out of reach.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againTo deal with your debt, start by finding out whether consolidation would help in your case. Then look at what the debt is doing to a future mortgage application. And finally, use your target purchase date to decide how much cash goes toward paying down debt versus savings.A consolidation loan through a bank or credit union would combine your unsecured debts into one predictable monthly payment, typically at a lower interest rate than the credit cards and overdraft. As part of your research, ask what will happen to the accounts being paid off. The lender may require you to lower limits, freeze cards or close accounts, so that the new loan replaces the old debt instead of making room for more borrowing.One thing many people overlook is that a debt consolidation loan is not a magic fix for debt. It only helps if the payment fits your budget and you do not take on additional credit. Otherwise, a consolidation loan can turn one debt problem into two.The payday loans and overdraft deserve special attention because they often point to a cash flow problem, not just a borrowing problem. If those are not consolidated they would need to be tackled first, even if the balances are smaller, because they can be expensive, stressful and hard to escape once they become part of the monthly routine.Existing debt affects how much mortgage a lender may eventually approve. Car payments, credit card minimums and other required payments are counted against your income, so carrying them into a mortgage application can shrink your buying power in the same way as having too small a down payment does.With your budget in hand and information on your side, the next steps get simpler. Build a small emergency buffer first, so a new bill does not send you back to borrowing. From there, apply for a consolidation loan at your bank or credit union if your circumstances are right, or outline your own debt repayment strategy.If you need help with your strategy, or you are declined for a consolidation loan, a non-profit credit counselling agency can show you additional debt relief options and help refine your budget. Finally, direct any extra cash toward your highest interest debt before increasing your savings.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.That is where your timeline matters. If you are hoping to buy within a year or two, you may need to put nearly all spare cash toward debt first while keeping only a token automatic contribution to savings.If your timeline is longer, you may want to consider splitting your effort more evenly once the payday loans and overdraft are taken care of. Tools such as the first home savings account or the Home Buyers’ Plan, a program that works in conjunction with your registered retirement savings plan, may help.A clear purchase date turns the choice from “debt or down payment” into a plan you can actually follow. Resist thinking of debt repayment as a delay in becoming homeowners; it is likely the safest way to make buying a home more affordable.Mary Castillo is a Saskatoon-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt since 1996.Do you have a debt question for FP Answers? 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