You might have a hard time qualifying for the best mortgage rates in Phoenix if you’re carrying too much debt. Such an occurrence can deal a terrible blow to your dreams of owning a home. Lenders are likely to turn away your application when you’re laden with debt as it affects your ability to pay.
See, banks evaluate applications on the borrower’s financial history and credit score. If you have too much debt, it lowers your credit score as well, and this markets you as a risky borrower. Luckily, there two ways that you can use to get out of debt.
The avalanche method
If you’re looking to get out of debt quickly, the avalanche method, which entails going after the most expensive debt first will get you there fast. You will need to create a list of the debts you owe, ordering them according to the interest rates on each. Then you need to add up all the minimums payable on each account to get an idea of how much money goes into keeping current on all of them.
It is essential that you don’t miss a payment as it leads to fines and penalties. If you have any money left over after making the minimums, channel it towards paying off the debt with the highest interest.
The snowball methods
The snowball method works by handing you small wins as you go about freeing yourself from debt. It entails listing all your debts in ascending order, from the smallest to the largest then paying off the lowest on the list. Like the previous method, you need to make all the minimums on each debt every month. Then you would need to channel any left-over money towards clearing the smallest debt.
Once, you’ve removed a debt; you direct the freed-up cash towards paying in the next lowest debt on your list. The logic here is that you will free up more income once you get rid of the small debts and can use the extra money to pay off the next debt on the list.
Carrying too much debt limits your ability to realize your dreams of owning a home. With the right debt eradication methods, you can escape the debt trap and free up your finances.