Paying off consumer debt can be a way to help qualify for a mortgage or a larger mortgage amount. Lenders use guidelines when calculating how much mortgage someone can qualify for. Loans, credit cards, lines of credit are all factored into the equation. Here are some tips to help pay down debt to help qualify for a mortgage and get into a home of your own.
Change the behaviours that got you into debt Getting out of debt begins by eliminating the reasons you went into debt in the first place. Start living within your means and spend less than you earn. It’s that simple.
Tackle debt with the highest interest rate first It makes financial sense to clear up credit card balances with the highest interest rates first. This will save on interest costs. If the balances are too big to tackle, consider transferring the higher interest balances to a lower interest product.
Transfer higher interest balances to lower interest products Credit card debt usually comes with the highest interest rate. Transferring the balance to a line of credit or a 0 percent balance transfer credit card can help. In some cases, a 0 percent balance transfer credit card can provide immediate relief from high-interest credit card debt. As a way of attracting new customers, credit card companies offer 0 percent interest for a certain number of months. But balance transfers are not a cure or always an option.
Negotiate lower interest rates on credit cards If your credit card rates are so high it feels almost impossible to pay them off, it’s worth calling the credit card company to negotiate. If you have a history of paying your bills on time, there’s a good possibility of getting a lower interest rate. If this plan doesn’t work out, there is still a way to get a lower rate with a consolidation loan.
Consolidation loan It’s becoming much easier to find unsecured personal loans that you can use to consolidate multiple debts into one affordable monthly payment. Talk with your bank to see if this is an option for you.
Double up on payments Once your bill payments start to disappear, use the momentum to start making double up payments. If you pay off a line of credit or lower the interest rate on a credit card, use the freed up cash on the next debt you are tackling. Each time you come across any unusual sources of income (such as a bonus or tax refund), use those dollars to pay off a big chunk of debt.
The ultimate goal is to pay off debt and get into a home. It may not happen overnight, but a debt-free future could be yours. Create a plan and stick with it.