Are you thinking of buying a house, but want to lower your debt first? Well, you are not alone. Most adults have some sort of debt like student loans and credit card debt. The numbers grow each year as Americans take on more and more debt.
There are times when applying for a loan is the only solution available for a financial problem, though. It is important that consumers are able to stay current with the monthly payments. However, some things could get in the way, and you might not be able to pay on your debt for a month or two, or even longer.
The good news is that you can get out of that debt trap. You can bring your debt down to a more affordable level so that you have more dispensable cash to purchase a home.
Monitor Your Budget
Before you can reduce your high rates loans, you should know your exact current financial status. You should make it a priority to monitor your monthly budget. List the things you buy in a week. You can multiply it by four to get your monthly expenses.
By being conscious of your expenses, you can find ways how to reduce them. You will also be more aware of the value of money, which will lead to lower spending on unnecessary things. Your savings will add up over time and will greatly affect your spending power for the better.
Reduce Your Expenses
The best way to save money is not to spend it at all. That way, you have more cash to pay down your loans. Entertainment and dining out are some of the costly expenditures you should consider cutting out of your life for now so buying a house is more achievable.
You should also cancel unnecessary subscriptions, whether for a magazine or the gym. Cable TV is also something that you should consider canceling. You can watch most programs online, anyway.
Find a Loan that Suits Your Current Situation
It is important that the mortgage you apply for fit your financial status. You should look at the terms and conditions of the contract, including the fine print. Purchasing a house can help build up your equity. It can also bring some tax deductions.
When you consider the benefits you will get, it makes sense to get a mortgage. For instance, a fixed-rate loan gives you a higher interest rate at the start, but you get uniform monthly installment payments until you have completely paid it off.
On the other hand, an adjustable rate loan has a lower initial rate. The problem is that the interest could increase sharply without any warning. You might not be able to afford to pay it because the amount is too high compared to the initial payments.
If you can’t find the right conditions to fit your financial status, it is best to postpone your purchase for now.
Pay Off Small Debts
If you have several small loans, they add up and increase your total monthly installments. By paying off small balances, you reduce your monthly financial obligations. When you erase a small debt, you gain more money, and that improves your cash flow. You should also close credit lines that you don’t need so as to avoid getting more debts.
Another way to reduce your monthly expenses is to consolidate installment plans and credit cards into a single account. Make sure that you get one with a fair interest rate, though. Use this account to pay off your other debts that have higher rates.
Use Your Renter Status
When you are renting an apartment, you can use the rental good past as a reference when applying for a mortgage. Just make sure that the property owner verifies the payments.
It is advisable to pay rent with a debit card or check to have proof of your payments. Lenders also consider the time you stayed at the apartment. Longer is better. Consistency is a characteristic that creditors look for in a potential client.
Know Your Credit Rating
A good credit rating is something will give you access to good interest rates. While you might still get a house loan without a good score, rates and terms of the mortgage will be bad. You should request a report and read through it thoroughly.
If you find any errors in the report, contact the specific lender. That way they can make amendments to their records. A small mistake, unfortunately, might lead to a costly monthly installment.
Stick to a Plan
If you want the best rates for your mortgage, then you must stick to your budget. You should also develop a plan that includes the amount you are paying for each debt and the order you are going to pay them off. Financial experts suggest paying off the ones with the peak interest rates first while paying more than the smallest installment on the other accounts.
As long as you follow the tips above, you can lower the amount of your debt in no time. That way, you can get the best deal for your dream home.