Last weekend I attended The Money Conference for Women in Hartford, CT. A 26-year-old woman stood up and shared how she is more than $60,000 in debt as a result of student loans and credit cards. She makes about $40,000 a year working for a non-profit and one of her immediate goals was to purchase a home. The keynote speaker, Michelle Singletary, a nationally syndicated columnist, told her to pump her breaks and focus on paying off her debt first. Her story is all too familiar. A lot of people want to take on more debt before addressing their current issues.
Although she probably wouldn’t get approved for a mortgage with today’s tight restrictions, my point is that prior to taking on the duty of a mortgage make sure that you are ready. Getting into a legally binding financial commitment that can last for several decades is no joke.
Angela L. Barrow, a home mortgage consultant for Wells Fargo Bank and this week’s speaker at the Bedford Central Community Development Corp. homebuyers seminar series, talked to us about how to eliminate debt, how to create a budget, and how to set realistic goals. For this young woman, homeownership is attainable but should be a long-term goal.
If you’re thinking about purchasing a home in the near future, now is the time to go on a financial diet and clean up your credit.
“You have to change your current behavior,” says Barrow. “Be honest and draw the line.” Follow these steps: Gather all your bills, list all your balances, list all your interest rates, and finally list all your minimum monthly payments. Identify the bills that you can get rid of quickly and then set a goal. Say, “I’m going to pay bill X off first in X amount of time.” Continue to make the minimum payment on your other bills. Repeat this for each debt.
To eliminate debt, it is imperative that you pay your bills on time. “A late payment can drop your credit score 50 to 60 points,” says Barrow. If you’re late with one card, you’re other cards can increase their rates too. This is called a universal interest rate.