Credit problems can seem like an insurmountable barrier to getting a home loan. It’s not
an easy task, but with patience and some insight you can turn things around. Here are
four ways you can get on the road to credit repair and put yourself in a better position for home ownership. 1. Develop a budget.
Stop all credit transactions right now. It might sound harsh, but
you should hide or destroy all of your cards if necessary! Now you can manage your inflow
of cash and, more importantly, your outflow - money in and money out. Develop a flexible budget. Consider all necessary expenses such as housing, food, and healthcare. Then, reduce those expenses that can be trimmed such as entertainment and dining out. 2. Contact your creditors.
If you aren’t making timely payments, don’t wait for your
account to be turned over to collectors. Your creditors may be able to help you get on
a lower-interest payment plan or agree to a settlement.
Tip: If your balance is unmanageable, offer a 30% settlement payment first. Some
creditors will take payments of 30%-40% rather than have you default. Make sure to get
the agreement in writing. Once you’ve paid in full, send the settlement letter to each of
the credit bureaus (Equifax, Trans Union, and TRW) for reference so they will update your
credit report.
3. Consolidate your debt. Another approach to consider is acquiring a debt consolidation loan.
This type of loan will allow you to pay off your outstanding balances with one, lower interest monthly payment. A home equity loan for debt consolidation could allow the
interest you pay to become tax-deductible.
4. Avoid bankruptcy if you can. A last resort is bankruptcy because of its long-lasting effects. Bankruptcy can make it difficult to attain future credit, life insurance, and
sometimes even a job. It does, however, offer a new start. The primary types of personal bankruptcy are Chapter 13 and Chapter 7. Chapter 13 allows you to keep property that you would otherwise lose, but pay off a default amount during a three-to five-year period.
Chapter 7 (straight bankruptcy) liquidates all of your assets that are not exempt. Property
is turned over to creditors or sold by a court-appointed official.
Help for home ownership is out there .There are lots of programs to help first-time and low-income homeowners, and even those with spotty credit histories who want to realize
the American dream of home ownership. |
