Tip 2 Look Carefully At Your Credit Report
Because your credit report and credit score weigh so heavily when applying for financing, its key to get a free copy of your credit report before seeking financing for a mortgage. Review all the details on the report and verify that each item listed is correct.
To get your report, youll need to contact each of the agencies separately and request it.
- Equifax or call 1-866-349-5191
Transfer Your Balances To A Lower
Some credit cards allow you to transfer your balances over from other cards. This can make sense if you’re able to obtain a significantly lower interest rate on the new card. Many balance transfer credit cards also offer promotional periods of six to 18 months for which they charge 0% interest on the transferred balance. Moving a balance from one card to another won’t eliminate the debt, of course, but it can help you pay it off faster.
Tips For Buying A House With Credit Card Debt
Provided you meet other minimum mortgage requirements for the loan type youre getting, you can buy a house with credit card debt. However, keep the following tips in mind to stay on track for a loan approval.
1. Review your credit report
The last thing you want when applying for a mortgage is to be caught off guard by surprises in your credit history. Pull your free credit report from AnnualCreditReport.com and review it for accuracy. If you do come across an error, dispute it directly with the three credit reporting bureaus .
2. Make more than the minimum monthly payment
The best way to tackle credit card debt, whether youre applying for a home loan or not, is to pay more than the bare minimum. Your mortgage lender may have access to your trended credit data, which shows how much youre paying toward your debts each month. If you pay more than whats due, it demonstrates your commitment to handle your debt responsibly.
3. Consolidate your credit card debt
Remember, if your credit utilization ratio is higher than 30%, your credit score will suffer. Consolidating your debt using an unsecured personal loan could help you more efficiently manage and pay off your balances. Unlike credit cards, a personal loan is an installment loan that you receive in a lump sum. Consolidate your debt well before applying for a mortgage perhaps six months to a year in advance, or even earlier. Doing so in the middle of the homebuying process could derail your loan approval.
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Ways To Consolidate Credit Card Debt
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Consolidating your debt is ideal if the new debt has a lower annual percentage rate than your credit cards. This can reduce interest costs, make your payments more manageable or shorten the payoff period.
The best way to consolidate will depend on how much debt you have, your credit score and other factors.
Here are the five most effective ways to pay off credit card debt:
Refinance with a balance transfer credit card.
Consolidate with a personal loan.
Tap home equity.
Start a debt management plan.
Best For Fair Credit: Payoff
The Payoff platform helps people who want to consolidate credit card debt find lenders that may be willing to help. Interest rates from Payoff Lending Partners start as low as 5.99%. You can borrow up to $40,000 if you qualify. Borrowers will also receive a free monthly update of their FICO Score.
Borrow with a fair credit score , if you can satisfy other loan requirements
Few fees apply. Loans include no application fee, prepayment penalty, late fee, or annual fee
A soft credit inquiry allows you to check your rate online
Limitations on how you use fundsconsolidate credit cards and certain unsecured installment loans only
Origination fees of up to 5% may apply
Minimum rate increases to 6.99% if you need to borrow more than $15,000
Other important information:
- Minimum/maximum amount you can borrow: $5,000 to $40,000
- Fees: Origination fees range between 0% and 5%.
- Minimum recommended credit score: 600 FICO Score
- Other qualification requirements: To qualify, they’ll also consider your debt-to-income ratio of 50% or lower, age of credit history, and satisfactory tradelines that youve paid on time, and zero delinquencies on your credit report in the past 12 months.
- Repayment terms: Select terms between 2 to 5 years.
- Time to receive funds: Most loans funded in 25 business days.
- Restrictions: Payoff loans arent available to residents of the following states: Massachusetts, Mississippi, Nebraska, and Nevada.
Read the full review: Payoff Personal Loans
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You Have Good Or Better Credit
Your credit score is a key factor in the loan application process. Personal loan lenders typically give borrowers with higher credit scores lower interest rates. If you have good to excellent credit a score of at least 670 you have a better chance of nabbing a personal loan with a lower interest rate than what youre paying on your credit card debt.
Conversely, borrowers who have lower credit scores risk getting a higher rate than their current card. Because personal loans can reach high double-digit rates , its important to apply for and compare loan offers. Most lenders will allow you to see the rates you could qualify for via a soft credit check, which wont affect your credit.
How To Choose The Best Credit Card Refinancing Loan
Long-term financial impact is the most important factor to consider when considering the best loan to refinance credit card debt. You dont want the solution to put you in a worse position.
Make sure you understand your financial situation how much of a monthly payment you can afford and what you hope to accomplish. Dont jump into something that may look good without researching it first. The Consumer Financial Protection Bureau and Federal Trade Commission both have tips on how to spot scams and lenders who will cost you too much money. If you have a relationship with a bank or credit union, that might be the best place to start.
Ease of applying is a great perk, but shouldnt be the top qualification. The major things to keep in mind are:
- A maximum monthly payment that can eliminate your debt.
- Fees that arent so bad they make it more expensive than its worth.
- A lower interest rate than what youre currently paying.
- Monthly payments you can afford.
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Options To Get Loans To Consolidate Credit Card Bill Payments
Following are some of the options that you can use to pay off your credit card debts.
Debt Consolidation Loans
There are lenders who offer credit products in the name of debt consolidation loans. The idea of the introducing this kind of loan is to manage all your debts under one loan. The bank offers a certain amount of loan and the rest will be contributed by you to pay off the entire credit card debts. Now you will be repaying the debt consolidation loan alone with interest rate charged. This is an effective method to manage your credit card bill payment if you have not paid for a long time.
A person loan could be a best consolidation tool as it is an unsecured loan and could be taken from any lender. With a bad credit, you might have to be open for unattractive interest rates. However, in general, credit card interest rates are higher than the persona loan interest rates. Hence a personal loan could be a viable option to reduce your credit card debts.
This is another one of the best option if your credit card debt is low. Short-term loans can be obtained with minimal documentation from NBFCs and online lenders. The loans are disbursed quickly, and the process is quick and simple. Most lenders do not use credit score as the criterion to grant short-term loans and you can use this as advantage to clear your credit card debts.
Features of debt consolidation for bad credit
Should I Consolidate My Debt
There are several markers that tell you when debt consolidation is a good idea. Those markers include:
- When you have a steady income that exceeds your monthly expenses
- When the interest rate on your debt falls, preferably to 8% or less
- When you qualify for a 0% interest rate credit card
- When the monthly payment is an affordable part of your household budget
- When those payments actually reduce the balance owed each month, rather than just meeting the minimum amount required
- When you can pay off your chosen route consolidation loan or the debt management program in less than five years
If you want to be responsible with your money and you want to step away from credit card dependence, you need a plan. Debt consolidation is a plan.
It simplifies bill paying. One affordable payment, once a month, to one source. If you do that, your balance drops and, given time, your credit score rises.
Eventually, you can breathe again financially.
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How Do You Calculate Credit Utilization Ratio
A revolving credit account usually has a credit limit. That is the maximum amount you can charge on the account. The percentage of that limit that you use is an indication of financial responsibility.
If you are using a low percentage of your credit limit, you are demonstrating responsible use of funds. If you max out your cards, youre demonstrating the opposite.
There is a simple formula: Divide your total debt on revolving credit by your total available credit limit on your revolving accounts.
Total Debt / Total Credit = Credit Utilization Ratio
The Ascent’s Best Personal Loans For 2021
The Ascent team vetted the market to bring you a shortlist of the best personal loan providers. Whether you’re looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. on The Ascent’s top picks.
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Debt Relief Alternatives If Youre Denied
If you cant qualify for an unsecured personal loan, then youre unlikely to have success with other unsecured lending options. Balance transfer credit cards and Lines of Credit also both require a strong credit score to qualify at the right APR.
Equity lending options
If you are a homeowner, then you may consider options that allow you to borrow against the equity in your home. This includes options such as refinancing, Home Equity Lines of Credit , or a second mortgage.
These lending options are secured using your home as collateral. Because the lender has the extra protection of collateral that they can liquidate in case of default, they may have more flexible qualification requirements. It may be easier to find a lender willing to work with you despite your weak credit score.
However, you must carefully consider whether the need is worth the risk. Borrowing against your home increases your risk because default could lead to foreclosure. In many instances, debt consolidation is simply not worth that risk.
Relief options that dont require financing
If a proof credit score is preventing you from getting a new financing to pay off debt, then it only makes sense to seek out options that dont require new financing. Instead of applying for a loan to pay off debt, you need to consider some alternatives:
How To Overcome Credit Card Debt
What Is a Credit Card Debt?
When you incur a credit card debt, you actually keep borrowing money every month, and that is why it is also known as revolving debt. It is only good until you can repay them, but when you cant, the debt keeps accumulating. When compared to the loan accounts, you can actually keep using your credit card accounts for an indefinite time. On the other give, in the case of installment loan accounts, after you have cleared out the entire balance, the account will be closed.
Another thing that you must keep in mind about a credit card debt is that it is an unsecured type of debt. In simpler terms, there is nothing that the company can seize, like a house or a card, even when you have failed to repay them. But yes, if you are not able to repay the money you borrowed from the credit card, it is going to affect your credit score drastically.
How Is Credit Card Debt Accumulated?
When you get a credit card, you will see that there will be a due date within which you have to clear the entire balance that you have accumulated on your credit card, and if you fail to do so, you will be accumulating debt. There is a term called APR or Annual Percentage Rate and this is a rate of interest that is charged on your debt when it keeps accumulating one month after the other. The APR that you will be charged may not be the same as someone elses and this is because it keeps differing with your credit history, the bank issuer, and the type of card that you have.
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Types Of Debt Consolidation
There are several avenues open to consolidate debt, including a debt management plan home equity loan personal loan credit card balance transfer and borrowing from a savings/retirement account.
The route you choose should be based on research and whether the solution offered fits your budget and time frame. Your credit score and debt-to-income ratio are factors, if you choose to get any kind of consolidation loan. You many also choose to pursue online debt consolidation.
Here is a quick look at each option.
Beware Of Debt Settlement Scams
Some companies offering debt settlement programs may engage in deception and fail to deliver on the promises they make for example, promises or guarantees to settle all your credit card debts for, say, 30 to 60 percent of the amount you owe. Other companies may try to collect their own fees from you before they have settled any of your debts a practice prohibited under the FTCs Telemarketing Sales Rule for companies engaged in telemarketing these services. Some fail to explain the risks associated with their programs: for example, that many consumers drop out without settling their debts, that consumers credit reports may suffer, or that debt collectors may continue to call you.
Avoid doing business with any company that promises to settle your debt if the company:
- charges any fees before it settles your debts
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
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I Consolidated My Credit Card Debt With A Personal Loan
The first thing I knew I needed to do was change the nature of my debt so that I could bump up my credit score and reduce the burden of my credit card payments on my paycheck each month. So I took out a personal loan at my bank, for a five-year term, to consolidate my debt at a lower interest rate than any of my credit cards carried.
This converted my debt into a standing installment loan rather than revolving debt which was better for my credit score instantly lowered my debt-to-income ratio to a fraction of what it had been, and reduced my monthly debt payments to a low enough point that I had a lot more at the end of each month to put toward my savings. I also applied for a slightly larger loan than the amount needed for consolidating my credit card debt in order to be able to put additional cash aside toward my home down payment.
From there, I set out to simply stack as much as I could in the bank from as many corners as I could manage. And I did between extra writing and teaching work I took on, the stimulus payments that I left untouched, and a perhaps embarrassing amount of money saved from the cessation of my usual social and travel activities due to the pandemic shutdown, I accrued a much larger down payment fund than I’d set out to at the start of my home search.
Researching Debt Settlement Companies
Before you enroll in a debt settlement program, do your homework. Youre making a big decision that involves spending a lot of your money money that could go toward paying down your debt. Check out the company with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm youre considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Enter the name of the company name with the word “complaints” into a search engine. Read what others have said about the companies youre considering, including news about any lawsuits with state or federal regulators for engaging in deceptive or unfair practices.
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