Too much debt a block to home loan

South Waikato News - - PROPERTY -

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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