Buying a new home is expensive. But there are ways that you can cut costs. A home warranty can help protect you with costly home repairs, but what other ways can you save money?
Americans’ ability to cover unexpected expenses in cash has declined as student loan payments restart, and inflation squeezes household budgets.
Fortunately, there are several ways that Gen Z and millennials can battle owing a new home and cut their costs.
1. Get a Debt Management Plan
A debt management plan, also known as a DMP, is administered by a credit counseling agency to help you pay down unsecured debt. Credit counselors can often negotiate with creditors to reduce your interest rate, lower your monthly payment and waive fees or penalties.
Typically, you’ll send one monthly payment to the credit counseling agency, which will distribute it to your creditors. You’ll typically receive fewer collection calls, and your monthly payments should show up as on-time payments on your credit report.
A DMP can have a negative impact on your credit score, but it’s usually less severe than bankruptcy or debt settlement. You may also lose access to credit cards you’ve enrolled in the program. It’s important to carefully review your monthly statements and report any discrepancies immediately.
2. Get a Budget
One of the best ways to reduce your spending is to start a budget. This can be done by determining fixed monthly expenses, like your mortgage or rent, utilities and car payment, as well as discretionary spending, such as entertainment, clothing and food.
There are many tools to help with budgeting, including spreadsheets, apps and templates. A great way to keep track of your spending is by creating categories that represent “needs,” “wants” and “goals.”
Another way to cut costs is by using a budgeting strategy that works for you, like purchasing items that can be purchased with a coupon or shopping at stores with BOGO offers. Reducing your spending can lead to big savings over time. Ultimately, this can be put toward your home purchase.
3. Pay Down High-Interest Debts
Debt that charges high interest rates can cost borrowers significant money. Credit cards, private student loans and payday loans charge some of the highest interest rates, according to credit bureau Equifax.
Try to pay down these debts as much as you can each month. Also, consider ways to boost your income like starting a side hustle, working overtime or asking for a raise
at your job.
Another option is debt consolidation, which combines multiple debts into one loan with lower interest rates and terms. However, it’s not right for everyone. Also, lowering budget lines like music streaming services or cable may help free up more cash for paying down debts. Finally, consider reducing your expenses by switching service providers or shopping for cheaper auto insurance.
4. Get a Second Job
If your salary isn’t enough to cover all of your bills, getting a second job can be helpful. Not only will it help you save for the future, but it can also give you valuable work experience that may make you more marketable.
However, working two jobs can also be tiring. It can take away from your time with your family and friends, sleep, and other essential activities. It can also increase your expenses for gas, groceries and laundry, so you must budget carefully.
It’s important to keep in mind that you can only work two jobs for so long before burnout sets in. Be sure to plan your schedule ahead of time to ensure you’re able to handle the workload without burning out.
5. Start a Home Repair Fund
Keeping a savings account to cover home repair expenses will help new homeowners avoid costly borrowing expenses. Many experts recommend putting away money based on their home’s value or using the square foot rule, which suggests storing up $1 for every square foot of your home.
It can be hard for low-income households to keep up with a home’s maintenance and repair costs, even after cutting household budgets. Government programs that encourage homeownership focus on mortgage interest deductions, but they don’t do much to help with home repairs and maintenance.
Many communities have home repair programs that can help with the cost of fixing leaky pipes and other problems. However, administrators often struggle to find contractors to do the work. Many large construction firms aren’t interested in working on low-wage projects and local labor pools have dwindled.