Planning for the Future: How to Manage Your Debt When Looking for a New Home

Shareium April 8, 2022 No Comments

Planning for the Future: How to Manage Your Debt When Looking for a New Home

When you’re planning on buying a house, you mustn’t overlook your existing debts. Perhaps you have a lot; perhaps yours is mostly under control. Potential loaning agencies will use your existing debt as a gauge: how much you have and how consistent you are with payments. If you’re looking to improve this area of your life, there are several options. Shareium presents this guide to healthier debt management to help you in your endeavor to purchase a house.

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Create an overall plan

The task ahead of you might seem overwhelming. Putting a plan in place can help you get organized as long as you take it piece-by-piece.

Start by laying out your current net income as well as your partner’s (if you have one). Your net income is the amount of money you bring home after taxes. This is particularly important if your paycheck can vary week to week. If this is the case, add up your paychecks from the last six months to find an average net income. Keep this number handy throughout the process as it will be important every step of the way.

Next, factor in your home expenses. Start with the basics like utilities, cable, and internet. Consider which bills will increase; for instance, your cable bill will probably stay the same, but your utilities may rise once you move to a larger space. You won’t be able to come up with exact numbers, but plan for increases in your monthly bills.

Once you’ve got your other expenses accounted for, lay out your debt costs one by one. Take note of the lender’s name, your overall balances, minimum monthly payments, and the interest rates for each. You have two main options for paying off these bills called avalanche debt payoff and snowball debt payoff:

  • Avalanche debt payoff focuses on paying off the debt with the highest interest rate. Once you’ve done that, you’ll take the money once used for those payments and use it for paying off other dwelling debts.
  • Snowball debt payoff focuses on paying off your smallest debt owed, then working your way up to the higher balances.

Talk with your partner about which strategy you think is right for your family. The main benefit of the avalanche route is that you’ll save money on interest charges. However, it will take you longer to pay off all of your debts. The benefit of the snowball method is that you’ll pay off individual debts sooner, leaving extra money in your pocket. The downside is that you’ll end up paying more in interest. The interest rates of each debt will likely dictate which route you choose. If you have one bill with an especially high-interest rate, you might want to take the avalanche route. If you’re more interested in having fewer debts on your record, the snowball method may be right for you.

One option to consider is debt transfer. This means taking the money from one debt and transferring it to a credit card with 0% APR (annual percentage rate) for at least a year. By doing this, you’ll stop accruing interest charges on that particular expense. Bear in mind that creditors don’t like seeing too many open credit cards, so if you already have three or four open, this might not be the right route for you. If, however, you close the account of the debt that you’ve just transferred money from, it can help balance things out.

Finally, you’ll want to set some goals for yourself. You may decide you want to pay your minimum balance week-by-week; i.e. instead of paying all at once on your due date, you chip away at it throughout the month. Maybe you want to pay off your credit card by a certain date. You could also aim to reach a certain balance on each debt in a set amount of time.


Create a budget

Now that you have all of your financial information in front of you, it’s time to make a budget. You’ve already done a lot of the work, so now it’s time to make adjustments. In addition to the information above, consider:

  • Money you pay for subscriptions (streaming and gaming platforms, magazines, movie theater prime memberships, etc.)
  • Money you spend on entertainment
  • Money you spend on going out to eat
  • Money you spend on groceries
  • Money you spend on clothing and accessories


Note which expenses are fixed (the same amount each month) and which expenses are variable (may fluctuate month-to-month). Calculate how much you spend on each category, making estimates for your variable expenses. Next, look for opportunities to cut back on your fixed expenses. For example, maybe you don’t need the full cable package you’re paying for. Or perhaps you’re willing to cut down on your streaming platforms. Keep in mind that you may be able to reinstate these expenses once you’re in your new house. For now, though, it’s a good way to reduce spending.

Your variable expenses will be easier to cut back on. Reduce the number of times you go out to eat or order takeout each month, cut back on how much clothing you’re buying, and see fewer movies. There are plenty of ways to replace these items; have family cooking nights instead of going to a restaurant, buy only clothes you absolutely need (work and school attire, for example), and turn to those DVDs collecting dust on the shelf when you’re looking for some entertainment.

Total up the extra money that you’ll now have thanks to cutbacks. This money will now be directed toward paying off your debts more quickly. Keep these adjustments in place until you’re completely settled into your new home. You might even discover that you want to keep these changes in place.

Lay out your budget so you can see everything all at once. Not only will you be able to see your expenses and cutbacks, you’ll have some insight into how much money you have for your house hunting endeavor.

If you look at your budget and discover that you still won’t have the 20 percent necessary for a down payment on a home, worry not. There are different kinds of loans available that can help you out including Rural Housing loans and FHA (Federal Housing Administration) loans. Explore your options to see what you qualify for and what’s the best fit for you.


Talk to professionals

If you’re not the best at math or would feel better having a second set of eyes, there are professionals who can help. Certified financial planners and wealth management advisors may help you find opportunities for cutbacks and savings that you hadn’t caught yourself. They can also help you use the right tools to make your budgeting process easier. While this may be an added cost while you’re trying to save, consider it an investment in your real estate journey. The right financial professional just might be able to help you set aside more money for your new house.

Debt management is vital when it comes to planning your future, especially when that means buying a new home. Have a plan, a budget, and possibly a professional to help you on your way. Soon, you’ll be in a better position to apply for a mortgage and you can begin your new life.

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