It's no secret that having a low debt to income ratio is a good way to get a great loan and a great rate how do you reduce your debt without piling on anymore?
Here are 6 great ways to lower get rid of your debt completely.
#1. Don't neglect communication.
A great way to start lowering your debt is to simply ask. Contact all of your debtors including student loans, car loans, credit cards and any other types of loans and ask for a reduction in interest rate or if there's any way that they can reduce a higher amount. If you can't get anywhere with the person on the phone initially you might ask for their supervisor. Don't get frustrated or rude but simply asking can get you a long ways.
#2. Pay off the smallest balance first.
This is a great way to get rid of the smaller, insignificant and yet annoying debt that is taking up just a few dollars each month. If you have a $200 credit card bill and you're only paying $12 a month, that's $12 that's just eating away at you every month for no reason. If you can make $200 payment or pay it off completely and then move that payment to a larger bill, you'll be able to pay things off in a faster way.
#3. Use the snowball approach.
People like Dave Ramsey use this snowball or avalanche method in a very effective way. By paying off the smallest balance first and then rolling that payment into the next smallest debt you will continue to create a snowball until you reach your largest payment and you've added all of those smaller payments into that one large payment being able to pay it off even faster.
#4. Consolidate cards and loans when appropriate.
Now, this is not to say that you should get a second mortgage on your home in order to pay off credit card debt. By adding 30 years to a loan that you could pay off in two years simply does not make sense. However, if you have multiple smaller credit cards that you can consolidate into one large credit card and then make one large payment leaving those smaller cards open, it will look much better to creditors and lenders.
#5. Consider refinancing your auto loan.
A lot of people don't think to do this if the interest rates to drop. However, if you have a five-year loan on your car and interest rates have dropped you might consider lowering your payments and refinancing your loan. You might call and ask around at a few banks or credit unions to see if they can lower your payment and reduce your interest rate.
#6. Negotiate settlements.
This is a last ditch effort but if your balances are too high to pay back within five years or you have debt collectors contacting you, it's best to negotiate and settle for less than you owe if you can't. The experts say that you need to pay around 30 to 50% of what you all in order to settle the debt in a timely fashion, usually about two years. However, this is best handled with the counseling of a debt counselor because there are a lot of mistakes that can be made and you won't want to dig yourself deeper into a hole.
There are great ways to reduce your debt and if you're planning on saving for home, or are looking to sell your home and buy a new one, having a great debt to income ratio is really the key to getting a better rate. Remember to stay on top of all payments and communicate whenever possible to your creditors, debtors and any lenders about mistakes, problems you may be having and get things corrected as quickly as possible.
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As a certified Realtor® for the top-rated Columbus Realty Firm - Vision Realty, with 32 years of dedicated real estate experience, I can help buyers, sellers, investors, short sale sellers and more find, sell or invest in the right property, at the right price, at the right time. Contact me anytime for updates and information on the Columbus OH Real Estate market.