The amount of debt that you owe can be a deal breaker when trying to obtain a loan to buy a house. Reducing it may help you qualify for a mortgage and get better terms.
Here are three suggestions that may help you:
How much?
First, you need to know how much you owe and for what. You can go to AnnualCreditReport.com to access free copies of your credit report once a year. Then you will have a clearer idea of your debts and how they are affecting your credit score.
Debt Repayment
There are several ways to “attack” your debt and it depends on how soon you want to pay it and how much you owe. You can choose to pay off the one with the highest interest rate, saving money in the long run; or you can pay off the one with the lowest balance, which will give you a sense of accomplishment and relief (which brings you motivation to keep going) and once the debt is paid off, you can use that same amount towards the next debt. Or you even can transfer your balance to a new credit card with a zero-percent interest rate, but with this approach, you must be diligent with your payments because if you don’t pay the debt over the promotional period of time, you are risking paying a higher interest rate and getting new debt.
More Than Minimum Payment
Paying the minimum payment often doesn’t cover all the interest that you owe and you are not reducing the debt in any way. Paying more than the minimum will help you to reduce the balance faster.
If you are trying to buy your new home, this would be your first and greatest step toward your goal.
