If you’re in a rent to own housing arrangement, you have a fantastic opportunity to improve your credit: you have time for credit repair. With improved credit, you have a higher chance of financing the remainder of what you own on your rent to own housing, and you can finally become a home owner. Would you like to become debt free by the time your rent to own lease option comes to an end and you’re given the option to buy? Getting rid of bad credit is achievable, and there are two commonly recommended options that can help: the snowball method and the avalanche method. Both are focused on credit repair.
Before You Begin, Budget
Prior to choosing a method to clean up your credit card debt, you need to figure out your current monthly expenses. There are bills you can’t go without paying, such as:
- Renters’ insurance
- Car insurance
- Car payment
- Student loan payment
- Minimums on all credit cards
- Healthcare expenses
- Food and other basic needs
- Minor entertainment cost (Netflix, Hulu, going to the movies)
Once you have an idea of your budget, check out each credit card and figure out how much you owe. You’ll also want to note the annual percentage rate (APR) on your cards, as well as any other fees. If possible, don’t forget to check Credit Karma to find your average credit age.
Credit Repair Option 1: The Snowball Method
The Snowball Method instructs you to pay off your smallest balance first. This creates a feeling of achievement, and it’s advisable for someone who has some credit cards with small limits and balances in addition to bigger ones that are harder to tackle.
When your smallest debt is paid off, consider how much you have been paying for it. Then, add that to your next payment. The idea is you’ll have a real snowball effect, so you can build a fairly simple structure and strategy to pay down your remaining debt.
Credit Repair Option 2: The Avalanche Method
If you’re more analytical, consider the Avalanche Method. With this method, you want to pay down the loan or credit card you have with the highest interest and then work down. Over time, this will save you money, in general and in comparison to the snowball method.
If you like those small wins, need some motivation, and find that talk about interest rates overwhelms you, the Snowball Method is for you. If you want to keep up with daily details and enjoy creating spreadsheets to track your progress, consider the Avalanche Method.
As long as you focus on credit repair, you should be able to purchase your rent to home housing when your option to do so arrives. If not, you’re still in better shape to find low income housing or explore a rental option in a higher end, safe community.