Not All Debt is Bad – Some Debt can Help Improve Your Financial Condition

All types of debt can be seen in a mortgage business. Debt payments for car loans, student loans and IRS payments, alimony, child support are made when you engage in a mortgage. Too much debt and having no debt can be both a big problem.

It sounds strange that having no debt can be a problem. It can be big problem because the lenders are looking at the borrower’s credit history before granting him mortgage. The lenders want to see the manner of your payment whether it is delayed or on time. If you have no debt then you can show no credit record to the lenders and more likely you will not be able to get a mortgage.

If you have never had a credit card or any payment for a loan then lenders have no way of checking your credit history and you just might end up keeping on renting instead of owning a property.

So what you should do is to apply for a credit card as soon as possible. You start with one credit card. It does not have to be an American Express Gold Card. It can be any card for a start that will allow you to purchase any item and to be charged to your account. Then pay on time when the bill comes. Do it consistently for several months and then apply for Visa or MasterCard later. When you have your Visa or MasterCard, do the same thing. Purchase small items and when your bill comes, pay your dues on time.

Do not apply for a bunch of credit cards at one time. Get a card one at a time in a couple of months and limit it to only three. Make sure that your payment is on time because one late payment can do damage to your credit score and it might be the reason for the disapproval of your application for mortgage in the future.

Having a debt has also its merits. It is not a problem at all times. Let me cite an example. Having a mortgage can provide you earnings. If you purchase a home at $350,000 and the home appreciates at a conservative rate of 2 percent per year then in one year the home is already worth $357,000 or in five years its value is $386,000. In addition to this you can reduce your federal tax liability. How does this work? If the home you purchased is worth $350,000 and you borrowed $315,000 at 4 percent interest, you can deduct $12,000 from your income which will result to a reduced federal tax liability. Debt can be a good investment. It can help you improve your financial situation.

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