What's Keeping Americans From Buying Homes? Try College Debt

Man stamping denied on mortgage application
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By Brian O'Connell

NEW YORK -- Housing prices are rising -- by 3 percent over the past year -- but that's just the leading edge of the problem for Americans struggling to afford a home.

Finding money for a down payment and monthly payments is proving difficult for a growing number of would-be homeowners, many of whom can't afford a new home for one specific reason: They owe too much in student loan debt.

According to NeighborWorks America, a Washington, D.C., nonprofit, roughly 25 percent of Americans know a family member, friend or co-worker who can't buy a home due to student loan debt.

Average student loan debt in the U.S. stands at $29,400, and that figure should continue to escalate given the steady and continuing rise in college costs in recent years.

Collegeboard.com says costs rose by 2.9 percent for tuition and fees for in-state students at public four-year colleges and universities in 2013-14, following increases of 4.5 percent in 2012-13 and 8.5 percent in 2011-12 (before adjusting for inflation).

NeighborWorks reports that most Americans (60 percent) want to own a home, but big issues such as student loan debt and a tight lending environment work against them, keeping otherwise credit-worthy buyers out of the market.

Nearly half of Americans (49 percent) who have student loan debt call their college loans the biggest obstacle to buying a home, even over "lack of a down payment" and "lack of job security." Women are particularly affected, as they represent 58 percent of all student loan debt holders.

"Earning a postsecondary degree is increasingly critical in the United States, but student debt is preventing some Americans from purchasing a home and fully fulfilling this 'American Dream' aspiration," says Chuck Wehrwein, chief executive at NeighborWorks America.

Burdensome student loan debt has a "spider web" effect that hurts the entire U.S. economy, he says.

"If we don't mitigate the effect student loan burden is having and will have for years to come on homeownership, the country will lose a significant amount of economic activity, and hundreds of thousands of people will be unable to benefit from the stability and financial value that homeownership has been proven to offer," Wehrwein says.

6 steps to start a debt payoff plan
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What's Keeping Americans From Buying Homes? Try College Debt
The first thing you should do is stop charging. Put your card aside, and switch to cash or debit now.
Get your debts in order. Make a detailed list of all the cards you're carrying debt on. Be sure to include each card's balance, its annual percentage rate and its payment due date.
Now that you know what you owe, it's time to make a budget. This will help you keep your finances in order and plan to pay off a big chunk of debt every month. It's also an opportunity to look for ways to trim expenses so that you can devote more money to cutting your debt.
Before deciding which card to pay off first, you should consider consolidating your debt onto a 0 percent balance transfer card. This can save you big bucks in interest, but it's also tricky. There are a lot of factors to consider, including balance transfer fees.
As an alternative to consolidating, you should make it a goal to pay off the card with the highest APR first. Devote all your extra funds to squelching this balance while still making minimum payments on your other cards. Doing so will save you the most money in interest in the long run.
Once you've paid off your highest APR card, attack the card with the second-highest APR next. Then tackle the others using APR as your guide to prioritizing. Keep it rolling until all your cards are paid off.
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