More always seems to be better in this age of materialistic consumerism. Who doesn’t dream of owning a lovely house and a swanky car? Knowing how to arrange money and keeping your head above the waters of credit card debt is not a skill that is taught in schools or a requirement to apply for lines of credit.
The question is: Will the banks help you to have a home loan for the home of your dream, once they learn of your credit card debts? This is the most important question that you should ask before applying for a home loan.
The Numbers Tell Your Story
One of the fundamental limits to home loan approval and the amount for which you can qualify is the amount of other debts that you have at the time of application. This is based on date-to-income ratio that is based on two things: the front- end-ratio and the back-end-ratio. On the basis of these two numbers, you will either qualify for the mortgage that you need or not.
Back-end-ratio, which also determines the fact that you will get a home loan or not, include many things such as your outstanding car loan, credit card balances, as well as other things such as child support payments; so it is important for you to know how to reduce that debt.
How To Reduce Your Credit Card Debts
If you want to go for a home loan then you should know to reduce the credit card debts because if the back-end-ratio is less than 36% then it is likely that you will get the home loan quickly. So, let’s take a look at how to reduce this debt:
Always be true to yourself
There are some people who claim that they have debt of $9,000 but in reality they have a debt of $14,000. So, it is important that you are true to yourself and you write against every card the debt you have and the interest you need to pay. If the actual numbers are not there then it means you need to face up to learning some financial skills and practicing some thrift.
This is tough advice to be sure. It means earning more and spending less, which could mean getting serious a hobby and selling items through online auction sites, getting a second job, find a better paying primary job or being more ambitious and apply for promotion with your current employer.
Seek an alternative loan that you can use to pay off your credit cards. If you can pay even a point two or three percent lower interest rate it will account for big savings. And that is why it is important to have a lower interest rate; this will also reduce the credit card debts. If you are considering a balance transfer option to another credit card watch out for front-end fees, which will instantly add four to five percent interest to the principal of the entire balance you transfer.
Pay Off The Highest Interest Rate Debt As Fast As Possible
If you think that by paying the minimum amount towards your credit card every month, you can either lower or reduce your debts, you are wrong, minimum payments are usually so low that you will take years to pay off the balance. Pay absolutely as much extra on the highest rate debt that you have until you have cleared the balance and then repeat the process with the next highest rate debt until all of your debts are cleared or at least until your back end debt to income ratio is a more acceptable level to qualify for the mortgage level that you need for the home you desire.