Your Questions About How To Pay Off Debt

Michael asks…

How can I pay off a debt I made online?

I just got my first credit card and plan to use it for online purchases; what methods are available to pay off a debt? I primarily want to know if it’s possible to pay off debts using my debit card.
When I used the word debt…; I guess it was misinterpreted. What I mean is, how can I go about paying something off I made online. For example, I buy something using a credit card, is it possible to pay off the money I technically burrowed using my debit card?

richmama answers:

By having a job. Dont get a loan or else that will put u in more debt.

Laura asks…

How important is it to pay off debt before applying for a home loan?

I want to apply for a home loan but I have about $10,000 in credit card debt. I want to get in on the market now, how important is it that I pay off my debt before applying for the loan?

richmama answers:

It may not be necessary, even harmful. First get your credit score(s) – there are now two “flavors.” Then calculate your debt to income ratio and your budget – how much are you spending each month out of your income. If you have not been saving any money, that is not good.

Check the market you want to buy the house in. Are the prices something you can afford? Is the interest rate you are likely to qualify for going to make for an affordable monthly payment? How much of a down payment can you make?

Avoid the no-down-payment people and the interest-only for a year or more people. If possible deal with a local bank that keeps the mortgages in-house.

Richard asks…

What debt should I pay off first to help my FICO?

Hey, I’ve just been blessed with a nice advance from an entertainment company for 150k. I wanna get some advice on what debt should i pay off first. My fico is 430 and im trying to buy a house but i have some car repo’s, credit cards and 1 apartment as well as student loans. Please if anyone has advice on how to turn it around cuz i have the money now to pay off debt. Thanks!

richmama answers:

Let’s look at your specific question, “Which debt should you payoff first to help my FICO?”

FICO scores are based off:
– payment history (35% of your score)
– amounts owed (30%)
– length of credit history (15%)
– new credit (10%)
– types of credit (10%)

So, it really does not matter which to payoff first in regards to improving your score. More importantly, pay on-time and pay down debt. The other suggestions are OK in regards to which order to pay.

Save some of the advance for an emergency fund (usually 3-6 months of your expenses). Once you pay off a credit card, do not close the account, it helps maintain credit history. Your student loan might be tax deductable and probably has a low rate, just pay the minimum on that one.

One last point, it takes a while for your FICO score to change (months/years). Your car repo will stay on your report as long as 7 years, from my understanding and takes up to 80 points off your FICO score.

David asks…

When we start to pay off debt how can we make sure it goes off of our credit?

We are going to be getting a lot of money soon. We’ll be able to pay off most of our debt and then some. Our credit is bad because of the debt we have and I was wondering…when we pay it off how can we be sure that it will go off of our credit?

richmama answers:

It is good that you are going to pay off your debt and when you do so it will indicate that your accounts have been paid/closed, however you will not immediately see a big jump in your credit score. The poor credit payment issues will still be noted on those accounts. You will now have to establish a good payment record to increase your score. If you are looking to purchase a big item such a car or house you could probably explain the prior problems and with a good income/debit ratio be able to secure the financing.

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