What steps to take in order to eliminate your home loans debt

Debt has become a disease for the Americans and most of them have accumulated debts on their credit cards, student loans, auto loans and even home loans. Home loan is the biggest loan that is taken out by a person as it involves a huge amount. This is a secured loan where the lender keeps your house as collateral to the loan so that if you default on the payments, they can repossess your house and sell it off to recuperate the money. This entire process is called foreclosure and if you want to avoid it and retain your home ownership rights, you must know the ways in which you can reduce your home loans debt and repay the entire loan without falling back on other debt obligations. Check out some ways in which you can do so

You can make extra payments: Instead of making the scheduled payments towards your mortgage loan, you can start making extra payments every month or you can schedule your payments in a bi-weekly manner so as to get debt free sooner. However, before repaying through this option, you must check whether or not your mortgage loan carries any kind of pre-payment penalties as this may subject you to unnecessary fees.

Go for a refinance: If you’ve fallen back on the monthly payments of your home loan and you see that the present mortgage rates are pretty low, you can go for a refinance. Take out another mortgage loan with a lower interest rate and use the proceeds in repaying your original loan. Then start repaying the new loan in easy and affordable monthly payments. You can change the term of the loan, the interest rate and also the loan program through a refinance.

Modify your loan: You may also modify the terms and conditions of your present loan so that you can avail better rates that can simplify the debt repayment procedure. Tell your lender about the financial hardship so that he alters the rates and makes repayment effortless for you. You can repay your home loans debt in this way too without taking out yet another mortgage loan.

Manage your finances in such a manner so that you can pay the mortgage installments on time. Eliminating your home loans debt can help you retain your homeownership rights and live within your means.

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What is your debt-to-income ratio and when is it important

If you’re in the market to take out a loan at an affordable rate, you must be aware of the two most important factors that are checked before giving you a loan. Yes, the numbers that are checked while giving you a loan are your credit score and your debt-to-income ratio, more popularly known as the DTI ratio. Are you aware of what a DTI ratio is and why it holds so much importance during a financial transaction? Read on to know more on this particular topic.

How is your DTI ratio calculated?

As the name suggests, your DTI ratio is nothing but the ratio of monthly income that you make in a month and the debt obligations that you’re supposed to pay in a particular month. The amount of debt will include mortgage debt, car loan debt, student loan debt, credit card debt and any form of other debt that you’re liable to repay. In order to calculate your DTI ratio, you have to add up all your monthly debt obligations and then divide it by the gross monthly income that you make in a month.

When is your DTI ratio checked?

Just as your lenders check your credit score before lending you a loan, they also check your DTI ratio that is your debt to income ratio. If you have a high debt-to-income ratio, this means that you have too many high interest debts in accordance with your monthly income. Therefore, this will imply that you’ll not be able to make the monthly loan payments on time as you may fall short of cash. This is the time when your lenders will charge you high interest rates on the loans. Thus, you must always calculate your DTI ratio before applying for a loan from a lender.

If you want to make sure that you grab the best loan in the market, you must work towards lowering your DTI ratio so that the lenders may be able to offer you a loan with an affordable interest rate. You can easily repay the loan without having to fall back on the other monthly obligations.

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Discharge your tax debts by filing for bankruptcy

If you are in distress because of income tax debts, then there is good news for you. You may get your tax debts discharged under Chapter 7 and Chapter 13 of the Bankruptcy Code. In fact, don’t think that bankruptcy is the only option you have got. There are 4 other ways you can take up to get yourself out of income tax debts. Here only the method of bankruptcy is discussed.

How can you discharge your debts?

There are certain requirements you should meet if you want to discharge your tax through bankruptcy. Chapter 7 bankruptcy allows you to fully discharge your debts. However, under Chapter 13 you will be provided with a payment plan that will help you to repay some debts while the rest of your debts will be discharged. The new bankruptcy laws treat tax debts in the same way under both Chapter 7 and Chapter 13 petitions. The five criteria that you have to meet to qualify for your tax debts to be discharged are as follows.

1. Return due date is at least 3 years ago – The tax debt that you want to discharge must be related to a tax return that had a due date of at least 3 years back from the date you file for a bankruptcy. Any extension is included in the due date.
2. The return must be filed at least 2 years ago – Your tax debt should be related to a return that was filed at least 2 years before you file for the bankruptcy. The accurate date is measured from the day you actually filed the return.
3. Tax return is not fraudulent – Your tax return cannot be fraudulent or frivolous for you to qualify for tax debt discharge under bankruptcy. 
4. Tax assessment should be at least 240 days old – Before you file for bankruptcy; the IRS must assess your tax to be at least 240 days old. Usually the assessment of the IRS rises from a self-reported balance due which can be either the final IRS determination in an audit or a proposed assessment by the IRS which has become final.
5. Taxpayer should not be guilty of tax evasion – You cannot be guilty of evading tax laws intentionally.

If you meet the above laws, you can qualify for bankruptcy.

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