Let's get working on that credit report! By now you know what you owe and that ultimately, and unfortunately, you have to pay it back. That part really sucks doesn't it?
This is probably going to be my longest blog so far, so be patient with me as I walk you through to the best of my ability how to help you pay off your debt and achieve the dream of Home Ownership!
You have debt. You need to pay off your debt to be financially set to own a home. Simple as that. I have put together a "mock" chart of what you owe, balances, minimum payments, etc. We are going to work off of that. If you want to follow along with your own bills, make a list on a sheet of paper and write down the information as it pertains to you, using the chart below as an example. Good luck....here we go....
Total Debt: $317,784.46.....WOW! No, not really that bad at all!
First of all take away the fact that you owe $xxxxx amount of dollars on your mortgage. A House payment is a house payment is a house payment. Whether you are renting or have a mortgage. It is there forever more until you move, or sell, or someone is nice enough to hand you a million dollars or the key to a brand new home out of the goodness of their heart. (BTW if anyone ever does that for you, please have them contact me - I'd love to be their friend too!)
For now, I am going to move forward assuming that you are renting, or live with family, etc. We are going to focus on the debt that's making your credit score low and the potential to buy a home even lower.
Ok, so this is what our debt REALLY looks like...
THIS is the debt on your credit report. Let's take care of it. How? I'll show you. Remember, I am NOT a credit counselor, a mortgage lender, and I'm definitely not a credit card company! I am showing you from my own personal experience. I have been to a credit counselor in the past, and this is how they showed me, so I'm passing along my knowledge to you. Let's get started....
1. Make a payment arrangement with Intermountain Health Care. Most Doctors and Hospitals will work with you on the balance you owe. But, treat them like a monthly bill. Be on time! They can and will report you to a credit collection agency and possibly a lawyer if you don't pay. You will notice that I put a dollar amount next to the Words "Due In Full", we are going to use this number as the monthly payment amount due for the Medical bill.
2. Do not look at the interest rates! Most common mistake! People assume that they must pay off the creditor with the highest interest rate first....WRONG! Start with the lowest balance. Then work your way up. I'll show you how in a few minutes...
3. Stick to your budget! Anyone who owns a computer has a program for writing a monthly household budget. Microsoft Office comes with one, you can make your own if you are just a tiny bit handy with making tables on your word processor or spreadsheet, or you can write one out in a notebook. Whatever is most convenient. If you prefer, you can click on any of the links below to print out a blank, or use an online program:
My favorite is quicken. I use the larger version, QuickBooks, but only because I own a Company. Quicken is very useful. I highly suggest that everyone look into purchasing something similar. You will keep better records of your finances and it is great when tax time rolls around. It is amazing to see how you spend your money when you are putting it in black and white.
Ok, moving right along...
Now we know that we have monthly payments in the amount of $675.00. Let's get started figuring out how we are going to pay this off!
I am going to use a chart that I made for myself when I was not able to see the "bigger picture" of paying off my debt a certain way. So my trial and error is going to be your success!
The rules are simple...
1. First take the smallest amount owed (in this case First National Bank Visa) and start making your monthly payments. Any additional Money you receive, (Taxes, Christmas, Gifts, etc) put towards that payment.
2. When that is paid off, go to the next smallest balance (Household Bank Credit Card).
a. THIS IS WHERE YOU START SEEING YOUR DEBT DISAPPEAR!
b. The same applies to this card, any additional money goes towards paying it off PLUS the money you were sending as a minimum payment to the 1st debt! Example: The Payment to First National Bank was $45 / month. When you paid that off, you have $45 / month extra - add that to your payment to Household Bank Credit Card of $180. You are now paying $225 / month towards this debt.
c. You see the point, so follow the chart. So forth and so forth....
By the way, you will probably have more than the original balanced owed due to interest, fees, etc. So you may need to adjust your balances accordingly. But you can still get to your goal!
Start with the debt highlighted in RED, make this your primary payoff goal. The items in BLUE will continue to only be normal monthly minimum payments. Once you pay one off, it becomes GREEN for MORE MONEY to use towards the next one, which then becomes RED until it becomes GREEN and so on and so on.
CONGRATULATIONS!!! YOU ARE NOW OUT OF CREDIT CARD DEBT!!!
Please don't make the most common mistake once your card is being paid down or completely paid off...DON'T KEEP CHARGING! We will talk about that more in Part V!