Pay Off or Pay Down Some Debt
If you make an effort to pay off or pay down some of your existing debt, this can help decrease your DTI ratio and make your financial picture look more favorable to lenders. It may be best to concentrate on paying off recurring debts, such as credit cards, to help your chances.
What debt to pay off first when buying a house?
There’s a good reason to pay off your highest interest debt first — it’s the debt that’s charging you the most interest.
What debt is most important to pay off first?
Try to prioritize high-interest debts as well as those that will most impact your credit score negatively if you fall behind. The interest rates you are paying may also determine which debt to pay off first.
Once you pay off the smallest debt, use that cash to make larger payments on the next smallest debt.
Follow the four step plan to figure out which debt to pay off first:
- Make a budget to figure out how much money you have to put towards debt payments.
- Make sure you always pay off the minimum amounts on all your debts.
- Make two lists of your debts; one in order of debt amounts and another in order of interest.
- Choose between the avalanche method, the snowball method, or a debt consolidation program.
The first step to paying off debt is knowing what your interest rates actually ARE.