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Five tips to help clear debt ahead of applying for a car loan

Five tips to help clear debt ahead of applying for a car loan

There are a lot of considerations that are made when you apply for a car loan. While your credit score has a huge influence over rates and available lenders, your debt to income ratio also plays a part.

A debt to income ratio calculates how much you owe against how much you earn. The lower your ratio, the better the car loan you can access. The more debt you have, the higher the ratio, the less a lender might be willing to offer.

If you’re planning to apply for a car loan, here are some actional tips to minimize any debt you might have for a better debt to income ratio.

1. Take stock of all debt

The first step is to assess four financial health. Identify all outgoings, all debt and make a list of how much, what rate and what term for each. Create a spreadsheet if that’s your thing and list who you owe, how much, the interest rate, the time it will take for you to pay it off and anything else you want to record.

2. Pay off expensive debt first

The reason we ask you to add the rate when taking stock is so you can prioritize repayment. You should always pay off the most expensive debt first. This is usually credit cards but if you have other debt, always pay off the debt with the highest rate.

3. Create a budget

Creating a budget isn’t the most interesting activity in the world but it can identify areas of spending that can make a huge difference. Knowing exactly what you have coming in and going out each month can help you create a much clearer picture of your circumstances.

4. Consolidate debt if possible

If you have multiple outgoings at relatively high rates, consider either borrowing more in a car loan or using a personal loan to pay all of them off at a single, lower rate. While it will take a while to pay it all off, having a single outgoing to pay off everything is much easier to manage.

5. Little things soon add up

When you look at your budget and your outgoings, don’t just concentrate on the big stuff. Something as simple as not buying a coffee each morning on the way to work can add up. As can buying unbranded products and using discount supermarkets.

Exactly how you save money is entirely up to you but look at the complete picture, not just the big picture.

I’m not going to insult you by implying paying off debt is easy because it isn’t. However, if you approach it in an organized way, you should find managing everything is actually easier than you originally thought. That alone makes it worth trying!

 

For more information please visit https://www.dixieautoloans.com/

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