Having credit card debt not only affects home loan applications, but it can often be a stressful debt to have if you have multiple repayments to make with high-interest rates. Paying off any debt is important but high-interest credit card debt can often feel like it is never going away, and paying it off quickly will not only increase the chance of your home loan application being approved, it will also relieve a lot of stress and give you more financial freedom.
Although it may seem daunting, the best way to achieve anything is to have a plan. Below we have compiled our top tips to get rid of your credit card debt sooner.
Avoid making new purchases
Possibly the most obvious, getting rid of the debt will be quicker and easier if you stop adding to it. Spending money you do not have is tempting, however, it is important to keep the end goal in mind and treat yourself once you have achieved that with money you have saved yourself.
Work out the total amount of money you owe
The easiest way to add up what you owe is to compile all your account balances and make a list. This way, you will not only work out the total amount owed, but you will be able to plan which debt you will pay off first. It can often be easier and more rewarding to pay off the smallest debt first because it will take the least amount of time. That being said, you could also save more money by paying off the debt with the largest interest rate first. Choosing which debt to pay off ultimately comes down to whichever one you think will be more gratifying for you.
Create a budget
Write down all your essential living expenses and divide it by your pay frequency (i.e. weekly, fortnightly or monthly). Now is the time to look at where you are spending your money and cut out things that are not absolute necessities. Your essential living expenses should include utility bills, groceries, fuel and rent. Once you work out your income and expenses, you should be able to work out how much extra you can allow for repaying your debts and set up automated repayments. Your social life might suffer for a while, but just keep reminding yourself about the end goal!
Consolidate the debt
If you have multiple credit card debts, debt consolidation can help by reducing multiple repayments into one only monthly repayment, often at a lower interest rate. It is important to remember that if you do consolidate your debt, to close the credit card accounts and cut up the cards so you aren’t tempted to use them again and create more debt.
Consider a balance transfer
Balance transfer credit cards generally offer low or 0% interest on your transferred debt for a period of time, usually ranging between 6 and 24 months. This can buy you more time to repay your debt without incurring any more interest, however, it is important to make sure you read the terms and conditions, as some of the balance transfer options will still charge a high-interest rate on new purchases. If you can have the self-control to avoid new purchases, a balance transfer could be a great option and can save you hundreds in interest fees.
Following these simple steps will see you pay off your credit card debt as quickly as possible, which will not only improve your borrowing power but also increase the chances of your home loan application being approved. For more information or advice, get in touch with a mortgage broker from Preston Finance and Insurance.