Janelle D. By Janelle D. • February 12, 2019

Credit Card Consolidation and Home Buying

As a real estate agent, you will run across prospects who haven't been pre-approved or pre-qualified to buy a home because they're dealing with bad credit scores. Many times, these low credit scores are due to less than desirable credit card debt.  As part of your nurturing campaign, you can help educate prospects about debt consolidation so they can reduce debt and eventually buy a home.  

With multiple credit cards, high interest rDebt consolidationates, and a considerable amount of debt, getting a personal loan to consolidate debt into one payment might be a good option for clients who are aiming to buy a home. Keep in mind, they will typically have to have an excellent credit score and at least a few thousand dollars of debt for most banks to consider offering a loan.

It's best to get pre-qualified for a loan vs. simply going to the bank and getting a personal loan. Getting pre-qualified will result in a "soft pull" of the client's credit report which will not drop their credit score. If they get a loan without getting pre-qualified first, their credit score will drop slightly because the creditor has to do a "hard pull" which adds an inquiry to their credit report. Another benefit of getting pre-qualified is that your client can get quotes from various lenders, landing the best rate, without the inquiries affecting their credit score.

Perks to consolidating credit card debt with a loan:

  • Lower credit utilization ratio
  • Higher credit score
  • Lower, fixed interest rate
  • 1 monthly payment in a set amount

Your client can decrease their credit utilization ratio by consolidating. With a loan and an interest rate lower than that of their credit cards, your client will be able to pay down the balance quicker, lowering the credit utilization ratio. They may see a dip in their credit score initially, but it should improve after a few loan payments have been made. A lower credit utilization ratio leads to an improved credit score.

Using a loan to quickly pay down debt may lead to a feeling of financial freedom which could get clients in trouble -- applying for more credit cards. Some people just can't help themselves when they're told they can get an instant discount on their purchase, for example, if they apply for a credit card. Educate your clients on the importance of paying off, not accumulating more debt. You might recommend a financial counselor to help them stay on track. Including them in an email nurturing campaign, focused on debt reduction, can also be beneficial as they work to pay down their debt.

As you can see, clients with a significant amount of credit card debt might benefit from consolidating their debts into one loan. They will save on interest charges, have only one payment to manage, and work to improve their credit score. If they don't qualify for a personal loan, they might consider transferring all of their cards to a 0% introductory APR card or utilizing a balance transfer credit card. Either way, they can work to reduce their debt and be that much closer to being able to buy a home from you.

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