Too much debt a block to home loan
One of the issues that stops people getting the home loan they desire is the amount of debt they are carrying on credit cards and store cards.
Credit card levels and repayment history can have a big bearing on getting a home loan application approved.
While banks have started to reduce the amount of deposit required for home loans, they still look hard at credit card debt.
While levels of debt vary between individuals it is unusual for us to process a mortgage application without any credit card debt. Getting out of debt Getting out of credit card debt is a process and you have to be realistic. If it has taken you several years to accumulate your debt, it is likely to take several years, plus some, to repay debt, because in addition to the amount borrowed, there is the interest and other charges incurred.
If you have an existing home loan and equity in your property and you are serious about debt repayment then a small top on your home loan may be the answer to get rid of the debt.
If you have not had a history of running up credit card debt your bank may approve a mortgage application to repay the credit card debt.
If you do not have equity in a property there is probably only one option available; repay the debt over time. Build momentum There are two theories in relation to paying credit card debt depending on the personality of the individual. If you are the analytical type, you will be one who looks at your list of cards and works out that the card with the highest interest is the one you should be paying off first.
If you are not analytical and like rewarding yourself, your best approach may be to pay off the card with smallest amount owing first to create momentum. Once you see one is paid off, this may be the incentive you need to attack the next card. Pay More Often When and how you pay off credit cards can also assist. If you coincide debt repayments with your income payments – weekly, fortnightly, monthly, this will even out your cash flow. Many banks advertise home loans with multi payments each month to reduce loan debt. It is no different if you want to reduce your credit card debt. Create a Plan today 1. Write a list of all your credit cards, with the amounts you owe,
Tips to help secure a mortgage. interest rates, and monthly payments for each of them. Knowing exactly how bad they really are is crucial.
2. Remove all your credit cards from your wallet or purse. If you can use your money instead of the bank’s money there is a good chance the debt will not be increasing.
3. Decide if you are going to use the momentum method or maximum interest method first to reduce debt.
4. Consider making your repayments on your credit card by automatic payment. If you are paid weekly then make the automatic payment the day after you are paid.
That way there will always be enough money to pay that little extra on your credit cards and you will avoid incurring any late penalty fees.
5. Consider transferring your credit card balance to one with a lower interest. Be aware of the terms of the low interest credit cards, though, as they often attract higher fees.
North Taranaki Midweek
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