Could your debts hold you back from buying a home? It’s possible, because mortgage underwriting includes calculating your DTI, which stands for debt-to-income ratio. The more debt you have outstanding, the less money you have available for a mortgage payment.

Cutting down your debt will improve your chances of mortgage approval, and ultimately make home ownership more affordable! Here are some tips to help you!

Set up a monthly budget. Find out what it costs to live month-to-month by listing your income, expenses and reoccurring debt payments. If you’ve never set up a budget before, see these instructions in wikiHow for help. Once you know how much money you have to work with, you can determine the best debt reduction strategies for your situation.

Consolidate student loans. If you have more than one student loan, you might come out ahead by consolidating the debts into one balance and one payment. It may also be possible to obtain a temporary forbearance on your student loan payments. Visit for more information!

Make additional principal payments on installment debts. If you have a car loan or other installment loan, making extra monthly payments to the principal balance will help you pay it off sooner. Once these types of debts are paid off, you’ll have a healthy improvement in your monthly cash flow.

Pick a credit card to pay off.  That’s right – start with just one. You only have so much money to work with each month, and if you spread it around too thin, you won’t feel like you’re making progress. Here’s a couple of strategies for dealing with credit cards:

Pay off the highest balance card with the highest interest rate first. This calls for applying every extra dime to your most toxic credit card, while making minimum payments on the rest. The problem is, this won’t improve your monthly cash flow for a very long time. It can feel like bailing out a sinking boat with a thimble. However, it will save you the most money in interest over the long run. Or…

Pay off the lowest balance card first. You’ll enjoy the feeling of accomplishment and be motived to continue your plan. You’ll also improve your monthly cash flow. As you eliminate smaller balances, you’ll have more money to throw at the big ones, and the task won’t seem so impossible.

Make your credit card payments online, and break them down into weekly or bi-weekly payments, matching your payroll schedule. This may be more manageable for your budget than making a larger monthly payment. Paying more frequently also keeps the interest accrual to a minimum.

If you’ve got more debt than you can handle, seek help through Consumer Credit Counseling Service. If you qualify, CCCS will set up special payment agreements with all of your creditors, based on your income and ability to pay. In return, you can usually get reductions on your interest rates, relief from collection activity and waiver of fees. However, your credit report may reflect that you’ve sought debt intervention, which in turn, could reduce your credit score until you’ve completed the program.

When you’re ready to begin your mortgage pre-approval, your Exclusive Buyer Agent can refer you to trustworthy, local lenders! Find an EBA in your area today!

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