Mortgage Q & A: Credit Card Debt Buries Mortgage Plans

Q: I had planned to buy a home before the end of this year, but due to a couple of emergencies and more than a few non-emergencies, my credit card debt has grown beyond acceptable limits for getting a mortgage. I know it's going to take longer to fix this than it did to use my plastic, but I'm ready to knock out this debt so I can buy my own place. Any suggestions?

A: There are several popular approaches, but your first priority is to ensure that all of your accounts are paid current. At that point, you'll need to evaluate your finances and decide which debt repayment option works best for you. Two debt payment options are based on the "debt payment snowball" model, in which you pay off your debts in sequence by targeting either the account with the smallest balance or the one with the highest interest rate to pay off first. Paying off smaller accounts first can help your repayment plan gain momentum.

The debt "snowball" method works like this. You make the minimum payment on all of your debts except the one you've chosen to pay off first. Pay as much against the first debt as you can afford; when the first debt is paid off, add the amount you were paying on the first debt to the second debt until it's paid off, and so on. As you pay off each debt, you'll be paying progressively more toward the next one in line.

Putting your home buying plans on hold until your debt is paid off isn't a bad idea, as carrying too much debt can ruin your chances for mortgage approval. Lower credit scores typically lead to higher mortgage rates and lender fees.

If your debts are too high to manage on your own, try contacting a HUD-approved housing counseling agency for help.

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