Ways to lower your insurance premiums

Question:

We would very much like to buy a home, but we have a lot of credit card debt. It started slowly and over the years has simply gotten bigger and bigger. We are worried that lenders will not qualify us with so many credit card bills. What can we do?

Answer: e past few years have introduced us to pandemic economics. Some households have prospered, some have not, and for many households, credit card debt is both a major cost and a barrier to mortgage financing.

At the end of 2022 credit debt reached $986 billion, up $130 billion in just one year.

Such debt can be costly. e typical credit card, according to the Consumer Financial Protection Bureau (CFPB), had a $4,773 balance in 2022. e Federal Reserve said that in December credit card users with outstanding balances routinely paid an interest rate of 20.40%.

“Nearly half of consumers with a credit card did not pay their full balance the month prior to the survey and so are ‘revolving’ debt from month to month,” said the CFPB. “While many consumers find credit cards a useful payment mechanism, typically only consumers who do not pay their full bill every month are charged interest.” e good news is that about half of all credit card users do not carry a monthly balance and thus have no required monthly payments. However, the other half do have balances and must make required monthly payments. ose required payments are used to calculate a borrower’s monthly debt-toincome ratio (DTI). A mortgage application can be denied if the DTI is too high.

For mortgage lenders – and for loan applicants –there’s both good and bad news here.

Excess credit card usage can impact interest rates because it represents an important part of the formula used to create credit scores. While general card usage is okay, large balances relative to credit limits can knock down credit scores. Lower credit scores

Ask Our Broker

By Peter G. Miller

mean higher interest rates.

According to the CFPB, “when households did have difficulty paying for a bill or expense, half also had difficulty paying for food, slightly more than half had difficulty paying the mortgage or rent, 44 percent had difficulty with a medical expense and 70 percent had difficulty paying for utilities.”

If you have excess credit debt there is a real need to reduce such balances and save money, whether applying for a mortgage or not. None of this is easy, but you have to start somewhere.

You can lower credit card debt by establishing a written weekly budget, saying “no” to unnecessary spending, and making more than minimum monthly payments. Add to savings from each paycheck and use some of the money to pay down credit card balances. Lastly, make sure you have $500 or so for emergencies, that’s enough in many cases to avoid high-cost payday and auto title lenders.

Email your real estate questions to Mr. Miller at peter@ctwfeatures.com.

Open