If you are interested in buying a house but you have too much debt, there are a few things you can do to get out of debt. I’ll go over the first four of our eight tips for getting out of debt today:
1. Stop adding to your outstanding balances. I keep one credit card in my wallet and leave the rest at home. Take the one with the lowest credit line with you and leave the rest behind or cut them up; then, you are less likely to go on a wild spending spree.
2. Take inventory of your current spending habits. Make a list of all of the places your money goes each month. Include things like rent, utilities, and medical bills, as well as your daily Starbucks run to make sure you have an accurate picture of your spending habits.
Once you create your budget and get all of your expenses in order, split that list into two separate ones. One list should include things that you’ll always have to pay for, like rent and utilities. The second list should include things you can pay off, like your credit card. Order that list according to account balances and interest rates. Once that is done, you’ll have a really good picture of what you can spend in the months to come.
3. Eliminate your biggest debts first using the snowball or avalanche method. The snowball method helps you reduce the amount of debt that you owe while the avalanche method helps you do the same with less interest in a shorter period of time.
First, make the payment for every bill. Then, make an extra payment for the highest bill on your list. Once you pay off that item, move the money you were using for that extra payment and apply it to the second item on your list. After that, knock every item off of the list each month until your balance is paid in full.
4. Cut out your expenses and make the payments. If you’re already in debt, how can you pay anything off at the top of your list? All it takes is proper editing. Let’s say you spend $100 a week on groceries. Try to spend $5 to $10 less each week. Go to the movies once or twice a month instead of every weekend, or spend $8 on your specialty Starbucks drink once a week instead of once a day. According to the snowball effect, that money will add up. Then you can apply that money to your debt and, in five to six months, you will be ready to buy a house.
These are just four of my eight tips to help you get out of debt and buy a home. I will cover the last four in our next video. If you have any questions in the meantime, just give me a call or send me an email. I would be happy to help you!