Debt is money that you’ve borrowed and must repay. It doesn’t only refer to loans from friends and family. Debt includes credit cards, student loans and even your mortgage (if you own a home).
Speaking of owning a home, debt can put a damper on your real estate goals. Debt affects your homebuying budget, your ability to save for a down payment and closing costs, and the type of mortgage you can get. The take-home message: If you’re thinking of buying a home, minimize your outstanding debt.
We understand that debt control is easier said than done. If you need in-depth debt management advice, consult with a financial professional. In the meantime, here are three steps to help you make positive progress on your payments.
Identify your debt.
As you analyze your obligations, make a note of these debt-related characteristics:
- How much money you owe on each debt
- The APR rates
- The monthly minimum payment due
After you see these things in black and white, it might become easier to create your plan of attack.
Rework your budget.
After you understand your debt, it’s time to determine how much money you can afford to spend on your debt payments each month. To do this, you might need a budget overhaul. Make a list of monthly expenses, and create a plan to eliminate as many nonessential expenditures as possible. Put the money you would have squandered away on these things toward your debt.
Create a debt repayment strategy.
There are several ways that you can chip away at that pesky debt. Here are four sensible repayment plans:
- Use the “snowball method.”If you opt for the “snowball method,” start with your smallest bill. Work diligently to pay this bill while making minimum payments on your other debts. Once it’s paid off, put the money you were using to pay the first bill toward your next one. Many people find this strategy motivating because they can get debts off their list quickly.
- Use the “avalanche method.”This strategy works like the “snowball method,” except it prioritizes debt with the highest APR. Once that debt is eliminated, funnel your extra money toward the bill with the next-highest APR while continuing the rest of your minimum payments.
- Be on time – or early!Don’t get derailed by late fees or high interest rates due to tardy payments! Make your payments a few days early to ensure that you dodge these penalties.
- Don’t settle for the minimum.Minimum payments are often not enough to make significant progress on your debt. Pay more than the minimum to see stellar results, even if you can only afford to do this with one debt at a time.
Contact Us Today!
Are you afraid that your debt situation will impact your experience at the mortgage desk? Talk to at MortgageDepot today to see how your financial situation might affect your real estate goals.
Connect with one of our loan consultants today to learn more!
