36% of Homeowners Landed in Credit Card Debt Due to Housing Expenses. This 1 Move Can Help You Avoid That Fate

A young couple sadly looking through bills.

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Before you buy a home, set yourself up to manage higher housing costs and unplanned repairs.

Key points

  • A recent report reveals that many homeowners have gotten in over their heads financially.
  • It's important to have a healthy level of savings on hand before buying a home.

Owning a home can be expensive -- perhaps more expensive than most buyers bargain for. In fact, in a recent ConsumerAffairs report, 54% of property owners say their housing expenses are their largest financial burden. And 40% say their housing expenses are higher than what they can comfortably afford.

It's no wonder, then, that 36% of homeowners have had to rack up credit card debt at some point in time due to housing expenses. This percentage rises to 44% among homeowners who consider themselves "house poor" -- meaning, they spend so much on housing that there's little left over for other bills.

If you're looking to buy a home, it's important to not put yourself in a position where you may be forced to rack up a credit card balance just to keep up with your expenses. Credit card debt can be extremely costly, and it can also cause extensive damage to your credit score if you accrue too much of it.

In fact, if you're going to buy a home, there's one step you can take to reduce your chances of landing in credit card debt -- and hurting your finances as a result.

Go in prepared

Owning a home could mean facing unpredictable expenses, like rising property tax bills and sudden repairs. That's why it's essential to go into homeownership with a fully loaded emergency fund.

As a general rule, your emergency fund should contain enough money to cover three to six months' worth of essential living expenses. If you save up that sum, it should help you pay for sudden home repairs and other housing expenses you may not have anticipated initially. Or, you may want to build one emergency fund for general expenses, and then maintain a separate emergency account for home expenses. The choice is yours, but the key is to have that money on hand in case you need it.

Don't take on too much house

Another great way to avoid credit card debt in the course of homeownership is to spend more conservatively on a home. If you can afford a $250,000 mortgage, consider sticking to a $200,000 loan so you have more wiggle room in your budget for all of your housing expenses -- including those that may be difficult to anticipate, like sudden repairs.

If you're not sure how much of a mortgage you can comfortably swing, use a mortgage calculator to run some numbers. Keep in mind your emergency fund shouldn't be there to pay your mortgage itself because your paycheck can't cover it. Rather, that money in savings should be there for unexpected costs related to homeownership. If you're looking at signing a mortgage you're not confident your paycheck can cover, then you're better off waiting to buy.

In fact, as a general rule rule, your predictable monthly housing costs, including your mortgage payment, property taxes, and insurance, should not go above 30% of your take-home pay. If you're looking at exceeding that threshold, it's a sign you may be taking on too much house.

Our Research Expert