5 actionable steps to reduce debt and get a mortgage

Young couple moving into their new home

Have you thought about taking out a mortgage, but need to reduce your debt first and get your financial life in order? You are not alone.

According to the latest figures from the Federal Reserve, in 2017 alone, Americans have $ 246.2 billion in credit card debt and other revolving debt and $ 99.6 billion in non-revolving debt, such as car payments, personal loans, and student loans. When you look at the numbers, they seem to be growing every year.

There is nothing wrong with applying for credit and taking on debt. In fact, with the rising costs of higher education being just one factor, it may be necessary. The key is to just keep making the monthly payments.

This is easier said than done when the reality of life gets in the way. Whether it’s due to youthful carelessness or perhaps financial hardship due to a lost job or a high medical bill, it’s understandable that you sometimes get off track.

However, you don’t have to be stuck with that debt forever. This post aims to give you five actionable steps you can take to get your debt down to a more manageable level so you can do that take care of a house rather now than never. Let’s start.


Before you work on paying off a debt, it can be helpful to take a good look at what you stand financially. That starts with keeping a close eye on your budget. If you want to create a color coded Excel document, that’s great. However, it doesn’t have to be that complicated.

One budgeting strategy you may find effective is to take a week and write down everything you spend money on (e.g., $ 200 on groceries, $ 100 gas bill, $ 20 at the cinema, $ 50 eating out, etc.).

Just writing things down creates consciousness. If you don’t know, it’s easy to spend $ 5 here or $ 20 there. It doesn’t seem like much at the time, but after a while it all starts to add up. The increased focus on it can add to your budget in itself.

Do some cropping

Vacation is almost here and many of us have recently cut trees. We’ve all heard that money doesn’t grow on trees, but it is definitely made from trees. If we find ways to prune the rotting parts of our budget tree (areas where we may be overspending), we can pay off debt so that our money tree gets healthier and grows to new heights.

A few obvious places to cut the budget include dining out and other public entertainment. You don’t have to serve mac ‘n’ cheese and make shadow dolls every night, but cutting your expenses in half can go a long way.

Another place to cut back is unnecessary subscriptions. I recently canceled a subscription to a meditation service. I have a subscription to a magazine I can never read and another to a digital comic book service. It’s been long enough since I couldn’t tell you the last comic book I’ve read.

Cable subscriptions are another big one. At my house, we pay about $ 200 a month for 500 channels. Of those 500, I probably watch 10. If we break it down even further, five of those 10 channels are TV broadcasts that I could get for free in high definition with a digital antenna.

If you have a set-top box like the Apple TV, Roku, Amazon Fire TV, or Google Chromecast, you can combine it with your internet connection and a Sling, YouTube TV, or Sony PlayStation TV subscription to access a ton of entertainment options. in the form of Hulu, Netflix and Amazon. Fast internet isn’t cheap by any means, but using it in conjunction with one or two of these services is probably less than your cable bill in many cases.

Dealing with negative credit items

Now that you’ve gone over your budget and identified areas where you can tighten your belt to make sure your money goes further in paying off your debt, what should you pay off first?

In order to answer that question, you must first determine what you are dealing with. I strongly recommend checking out a site like Rocket HomesSM where you can get your credit report and score for free without affecting your score. These and other similar sites show you your credit report, but they also give you tips on how to increase your score and your credit rating.

The effects of bankruptcy vary depending on the type of loan you are trying to get, but in most cases there is a waiting period after settlement or dismissal of the bankruptcy. It is possible to get a loan within a year of being fired or dismissed, but after two or three years you have more options.

The good news is that with a little advance planning, you can take care of other negative credit items.

Judgments and Liens

If you have any judgments or liens on your credit report, it’s important to work on paying it off. In many cases, they have to be paid off before you can take out your loan.

The FHA and USDA allow you to leave judgments and tax rights open in certain cases. You need to talk to a lender about the requirements.

Direct debits and debits

Another point that needs to be addressed is collections and debits. Before we get into why, let’s talk about what these things are.

If you are in arrears for more than a few months, a creditor may choose to sell your debt to a collection agency. Once your debt ends up in collections, it can go to your credit report for seven years.

In some cases, a creditor can simply give up to collect the debt. Unfortunately, this does not mean that you are out of the woods. It’s on your credit report and stays there for seven years too.

Both direct debits and debits have a major negative effect on your creditworthiness. So you want to make sure you take care of them.

One thing to note about paying off collections and charges is that they don’t go away just because you paid them off. When you call the creditor to pay off the bill, you’ll want to make the full payment as it’s more open to negotiation. Tell them that you are making the payment and that you want them to delete any information about the collection or charge. Some may not be willing to do this, but if you make the payment, most should be willing to work with you. This has a great stimulating effect on your score.

Get Current

Depending on the type of loan you get, you may need to have no late payment or a limited number for the past two years. So it is very important to keep track of your payments.

Not only will it help you qualify, but the more timely payments you make, the better your credit score will get over time. You also save money on late fees.

Talking about this, it’s worth noting that your late payments are typically not reported to the credit bureaus until 30 days late. If you make a payment after the due date and any applicable grace period, but before 30 days late, you may be charged a late payment, but this does not count as a late payment in the eyes of the credit bureaus .

Decide which balances to pay off first

The next important thing to do when deciding what debt to pay off or pay off, and in what order, is to come up with your criteria.

Some people recommend paying off the highest balance, while others suggest paying off the loan with the highest interest so that you don’t waste that much money. If you want to get a mortgage (or actually some other type of loan) soon, you should pay off the loan with the highest monthly payment.

This is because mortgage or other type of loan approvals have a lot to do with your health debt-income (DTI) ratio. This ratio is what lenders use to determine how much of your monthly income goes into debt payments. The lower the number the better, but for the best mortgage approval chance, you can qualify for most mortgage options with a DTI below 45%, depending on other qualifying factors.

If these tips have helped you get out of debt and you are ready to buy a home, you can apply online at Rocket Mortgage® by Quicken Loans®. If you prefer to get started by phone, please call us at (800) 785-4788.

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