Before you even think about applying for a mortgage to buy a house, it is very important that you get your personal finances in order and under control, which includes your credit card debt because it is directly tied to your credit score.
In determining your eligibility for a mortgage to buy a house, your credit score is one of the most important factors that your lender will look at as well as your credit history, and this can effect not only your eligibility but also your interest rate that you will pay for the duration of the loan.
High interest credit card debt can be very stressful and difficult to escape without a solid plan and good advice that you can start following to reduce or eliminate your credit card debt in order to apply for a mortgage and get your application accepted.
One of the metrics that your loan officer will look at in determining your eligibility for a mortgage is not just your credit score but also your debt-to-income ratio.
By following these 7 powerful tips you can help to reduce your credit card debt, reduce your debt-to-income ratio, and get an overall sense of control of your personal financial situation.
Call Your Credit Card Company To See If They Will Reduce Your Interest Rate
This is one of the first things that you should do in order to start paying down your credit cards and keep the balances from continuing to grow because of super high interest rates.
Most people do not think to do this, but it is very surprising what you can get if you simply ask because the number one priority of the credit card company is to make sure that you can repay your balance.
Most major credit card companies have a type of financial hardship program that you can ask for which will lower your interest rate as well as your minimum payment.
Ask Your Credit Card Company If They Offer Any Type Of Settlement Plan
If you have enough money saved up to pay off a larger portion of your credit card debt all at once, there is an option that most banks and credit card companies will offer which will allow you to pay off the entire balance at a discounted percentage, such as 70% of the total amount that is owed.
Many times you can either take the discounted option and pay it off over three months in three equal installments, or you can pay it off as one big payment.
This is not an option for all credit card users, especially if you are struggling to make minimum payments, but it gives you the opportunity to pay down the balances quicker and at a reduced percentage.
Literally Put Your Credit Cards In The Drawer And Stop Using Them
This step can be difficult or even unthinkable for a lot of people, but think about it like this: if you had taken this step earlier, you wouldn’t be struggling with your debt in the first place.
By going one day at a time on a cash only basis without putting any more charges on your credit cards, you can discipline yourself to take care of all your financial needs without piling up more high interest debt and start to form more responsible spending habits.
This can help you to focus more on debt reduction and also help you make sure that you do not get into the same financial situation again.
Look Over Your Credit Card Statements With Another Person
Having another person be a part of your financial situation can make you more accountable for your spending behavior so that you do not continue to pile on more debt.
Whether it is a spouse, family member or friend, having another person be a part of your financial situation can help to hold your feet to the fire and give you extra motivation and accoutability for getting on top of your financial situation.
If you are trying to reduce your credit card debt so that you are eligible to apply for a mortgage, this step is especially important if you are in a relationship and plan on having that other person be a co-signer with you on the mortgage application and title.
Sign Up For A Secure Credit Card With A Lower Credit Limit
If you are unable to stop spending on your credit cards, it might be a good idea to get a secure credit card where you must make a deposit and your credit limit cannot go any higher than your deposit.
This type of credit card is generally intended for people with poor or no credit history in order to build up their credit score, but since you have already racked up credit card debt you can use it in such a way that you can still make necessary expenses without racking up charges on the cards you already have.
By having a smaller credit limit than you are used to (since you must make a deposit to match your credit limit), this can discipline you to be more cautious about the things that you are spending money on and make better spending decisions.
Practice Living One Day At A Time On A Cash-Only Basis
Living on a cash-only basis can be difficult or impractical, but if you are a compulsive spender who spends money on your credit cards when you cannot immediately pay it back then this can be a very powerful step for you in terms of forming positive financial habits for the future.
If your circumstances mean that you absolutely need to use a credit card in your daily life, you should follow the step above and intentionally use a secure credit card with a smaller credit limit so that you cannot spend more than your initial deposit.
One of the greatest benefits of following this step is that it will form positive spending habits in your subconscious mind for the future, so you will naturally distinguish between cash and credit for future purchases.
Start A Budget Of All Of Your Debt, Income, And Expenditures
This is one of the most important steps when you plan on applying for a mortgage, because once you buy a house you will not just be paying the mortgage payment but also your utilities and any other regular expenditures you might have.
Budgeting can be a difficult thing for a lot of people to do because it forces you to come face to face with the truth about your financial situation.
If you are serious about buying a house then it is very important for you to be extremely realistic about what you can and cannot afford down to the exact dollar amount, because this is exactly what your mortgage officer will be looking for.
Final Thoughts About Reducing Your Credit Card Debt
Frankly it is going to be difficult or even impossible for you to ever qualify for a mortgage or home loan if you are unable to get your credit card situation under control and handle it.
Many people have been in the same situation that you have, and there are many tried and true tips that you can follow starting today in order to help you turn your financial situation around.
By following the 7 tips in this article you can get yourself on the path to eliminating your credit card debt and getting your financial situation ready to qualify for getting a mortgage to buy your home.