Getting ready to start the search for your perfect home for retirement? If so, there are several things you should do first. You should get in touch with a trustworthy real estate agent like Parkside Realty Group, you should start visualizing your ideal retirement and what type of home will facilitate that, and you should take an aggressive approach to reduce debt.
Debt, though fine in moderation, is a dangerous thing to have too much of. Not only does it keep you in a perpetual state of financial instability, but it can also stop you from getting a mortgage loan with a great rate. Mountains of debt tank your credit score, making you an unattractive investment for your lender.
Fortunately, there are plenty of debt management solutions out there that can help you lower debt and improve your credit. With the right moves, even a year or less of hard work can get your credit score into a mortgage-friendly zone. We’re going to take a look at your options, as well as give you a few tips for staying on a tight budget:
The Snowball Method
The first form of debt management we’re going to talk about is the snowball method. This approach to debt management is designed to build confidence and get you in the habit of paying down debt. To keep things manageable, you start with the item with the lowest total cost, disregarding the interest rate. You pay minimum payments on everything else while carving away at the small stuff first.
Ideally, the satisfaction of paying off small debts entirely reinforces the repayment habit. However, there is a drawback to this method. While you’re wiping away smaller debts, large-ticket items are still acquiring interest. You’re certain to pay more in the long run this way, but if it motivates you to get it done, the additional cost may be worth it in the end.
The Wrecking Ball Method
This route is slower and less viscerally satisfying, but it rewards fortitude with a lower bill overall. In this debt management method, you pay your debts off in order from highest to lowest interest rate, regardless of the total size of the loan or bill. As in the snowball method, you pay off minimum payments on everything else, which protects your credit score as you go along.
Again, the con of this side really boils down to that sense of completion and satisfaction, which is slow to start in this method. However, many people get a stronger sense of pride from clearing out the largest, most intimidating chunks of debt. Both methods have a lot to offer, and ultimately it just comes down to whether you think you’ll be more motivated by the checkpoints, or the finish line.
Managing in the Meantime
While you’re paying off debts, it’s important to live as low-cost a lifestyle as possible. You want to funnel as much of your income as you responsibly can into debt reduction. These budgeting tips can help you keep your costs low.
- DIY Around the House — As you prepare your current home for sale, do as much DIY work as you can safely manage. Although some types of work need a professional, the more you can knock out on your own, the lower your total bill.
- Groceries on a Budget — Clip coupons, go for store brands, buy in bulk, meal prep – there are countless ways to lower your grocery bill without sacrificing health or taste.
- One Man’s Trash — The window between deciding to move and finding your home is the ideal time to organize and downsize your excess stuff. Sell items online to make a few extra bucks along the way
You can even make a little game of finding ways to scrimp and save. Keeping close track of your spending allows you to see every dime you manage to reallocate toward your debt. Compete with yourself by trying to save up a little more each month. Soon, your debt will be manageable and your credit score can heal.
Need guidance while picking your retirement dream home? Turn to Parkside Realty Group for help finding the perfect property!
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