Debt tends to be seen as a warning sign by banks and lenders as they factor in debt repayments as well as mortgage payments – so the more debt you have, the less you’ll be able to pay towards a mortgage.
If you’re a first home buyer here are some helpful tips for paying off debt before buying a house.
1. Prioritise your highest interest rate debt
You can prioritise the debt with the highest interest rate and pay that one off first. This tends to be a good starting point because the longer your debt sits unpaid, the more interest you’re going to accrue.
or Prioritise your smallest debt
If this seems too daunting and you feel like you’re getting nowhere, you can try paying off your smaller debts first to really get the ball rolling before tackling the bigger ones.
2. Consider debt consolidation
If you have quite a few different debts, debt consolidation could be an option for you. This is where all of your debts are rolled into one loan, and it generally offers you a lower interest rate. Debt consolidation does have its drawbacks though, so it’s important to be aware all of the terms and conditions involved before going ahead.
3. Get the professionals involved
Even if you’re not quite ready to put forward your application for a mortgage, our expert mortgage team can give you some great advice on how to make yourself more appealing to a lender and get your finances under control.
4. Reduce your credit card limits
Banks typically look at your actual credit limit, not just what you have been spending – if you have a $10,000 limit but only typically use $5,000, the bank will still treat your credit card as though it’s a $10,000 liability, so it’s a good idea to reduce your limits or get rid of credit cards altogether.
5. Use calculators
There are so many fantastic tools out there now that will help you work out exactly how much you’re paying on your loan, as well as how much you can expect to pay in mortgage repayments.
Try Sorted’s Debt Calculator to see how much your debt is really costing you. We also have a great mortgage calculator so you can get an idea of your potential repayments.