Debt consolidation can help make your homeownership dreams a reality. According to reports, among the top reasons why people are struggling to become homeowners is because of existing debts. The other reasons include the rising cost of homeownership and a lack of down payment.
If your debt is currently making it hard for you to buy your own home, then the obvious solution is to pay it off. You should not let it hinder you from making investments that will improve your financial position. The earlier you can get rid of it, the faster you can move on to better and more rewarding financial goals.
Fortunately, there are a lot of options to get out of debt. One of the most effective is debt consolidation.
How consolidating debts pave the way to homeownership
But how exactly can consolidating debts help you with homeownership? There are three things that you can expect once you start paying off your debts.
Lowers your current debt
First of all, it is an effective way to lower the amount that you owe. What consolidating debts can do is to allow you to change your current repayment terms in such a way that it will make it easier to complete. If you need a lower monthly payment, debt consolidation opens a lot of ways to do that. If you want to pay off your debts faster through a bigger monthly contribution, consolidating debts will also help you change that.
The bottom line is, you will find it easier to pay off your debts – thus guaranteeing that you can lower the balance that you owe. With less debt, you are more likely to home loan approval.
Improves your credit score
Another area that will benefit because of this debt solution is your credit history. Debt consolidation is actually good for your credit score. If you started with a bad score, that can change a few months after you start consolidating your debts. Since the new repayment plan should make your monthly payments affordable, you are less likely to miss out on the due date. With no late payments, your credit history will improve and your credit score will go up.
With a good credit score, you have more chances of getting the best terms when you apply for a mortgage. You are qualified to be offered more choices and you can get the lowest interest rate on the debt.
Helps you save for a down payment
Finally, you can also take this chance to save up for a down payment. Ideally, you need to pay 20% as down payment so you can save money and not have to pay PMI or private mortgage insurance. If you cannot afford to give the 20%, the PMI will be an extra amount that you have to pay. According to reports, first-time buyers give an average down payment is 5% in 2017. That means there are a lot of first-time homebuyers who are paying extra money on the PMI. if you want to avoid this, you need to save up enough down payment.
Thankfully, debt consolidation can make that happen. You can choose a lower monthly payment so you can free some funds from your budget to save for a future down payment. As long as you stick to the saving goal, you should be able to buy your new house as soon as you finish paying off your debts.
Prepare for future homeownership while consolidating debts
Debt consolidation is not just an effective debt solution. It is also a great way to prepare your finances so you can afford to buy your own house. While it can help you reach your homeownership goals, that does not mean you will not exert any effort to improve it further. Here are things that you can do to achieve your financial goals faster.
Get used to using a budget plan
If you have been using a budget plan, that is good. You are one step closer to improving your finances. However, you might have to make a few improvements on the budget that you are currently using. First of all, your new budget plan should incorporate your debt payments. This will ensure that it will be funded enough do you can pay it off completely. The more you pay off, the closer you can get to homeownership.
Practice smart spending habits
You should also practice how to spend your money wisely. Since your limited finances will be restricted by your debt payments, you need to cure any bad spending habits that might lead you to waste your resources. Once you get used to spending your money correctly, you can take this new habit and make better choices even after you are already a homeowner.
Limit your use of credit
It is also important for you to limit the use of credit while you are paying off your debts. As much as possible, you should completely stop using credit until after you have paid off what you owe. If you want to use your credit card for the rewards, make sure you can pay it off in full at the end of the month. If not, then do not use it.
This is only temporary – until after you have completely paid off your debts and have applied for a mortgage. But even after that, make sure that you learn how to use credit wisely. That way, you will not end up abusing it again. After all, the mortgage you will borrow is not a small amount – and you will probably pay this off for decades.
Secure your income
Finally, you should also ensure that your source of income is stable and secure. This means you need to diversify your income. Find other ways to earn money. This can be through a side gig or a passive income business. Anything that you can use to earn extra will help you pay off your debts faster. Not only that, it will guarantee that you have the funds to pay off your debts.