Smart Debt Management Before Buying a Home: A 6–12 Month Roadmap
Buying a home soon? Great — but before you fall in love with that two-bedroom with the skylight, your debt profile needs some love too. Managing debt strategically in the year before purchase can spell the difference between approval with great rates or being told to “try again next year.”
TL;DR
If you plan to buy a home in the next 6–12 months:
- Pay down high-interest debt first.
- Keep credit utilization below 30%.
- Don’t close old accounts.
- Avoid new loans right before applying.
- Review your credit report quarterly.
- Consult professionals if debts feel unmanageable — and confirm when the statute of limitations applies.
Countdown — Debt Readiness How-To
| Timeframe | Key Actions | Why It Matters |
|---|---|---|
| 12 months out | Pull your credit report from AnnualCreditReport.com | Identify errors early. |
| 9 months | Pay off small, high-interest balances (e.g., credit cards, store lines) | Reduces utilization fast. |
| 6 months | Avoid applying for new loans or cards | Prevents temporary credit dips. |
| 3 months | Verify all payments post on time; set up autopay | Payment history = 35% of your credit score. |
| 1 month | Review pre-approval options via lenders like Rocket Mortgage or Better Mortgage | Ensures your debt-to-income (DTI) is in range. |
Common Mistakes to Avoid
- Closing old credit cards: Lowers average account age, reducing score.
- Paying collection accounts incorrectly: Might reset statute of limitations.
- Ignoring student loans: Consider consolidation via Federal Student Aid.
- Overusing BNPL (Buy Now Pay Later): Know that apps like Afterpay report to bureaus — impacting your utilization.
- Skipping emergency funds: Keep 3 months’ expenses liquid in a savings account such as Marcus by Goldman Sachs.
FAQ
Q1: How much debt is too much when buying a house?
Lenders usually prefer a total DTI under 43%. Lower is better — especially if you’re self-employed.
Q2: Should I pay off my car loan first?
Only if it boosts your DTI meaningfully. If it’s low-interest and near completion, maintaining on-time payments can help your credit mix.
Q3: What’s the best way to manage multiple debts?
Try the avalanche method — tackle the highest interest rate first — or use a platform like Undebt.it to visualize repayment.
Q4: How soon before closing should I stop using my credit cards?
About 60 days before. You want your utilization to report low right before underwriting.
Finding Expert Help (and Knowing When to Ask)
Debt professionals can clarify tricky issues like settlement timing, consolidation options, and the legal lifespan of debts.
If you’re uncertain when a debt expires legally or whether paying it resets the clock, it’s smart to consult a licensed attorney before affirming ownership of a debt — to ensure you don’t restart collection eligibility.
Product Spotlight — A Financial Planning Tool That Actually Helps
If you prefer tech-assisted tracking, You Need A Budget (YNAB) can simplify goal planning and forecast your cash flow leading up to closing. It doesn’t consolidate debt, but it visually aligns your payments with your homebuying timeline — a powerful motivator.
Glossary
Credit Utilization: The percentage of credit used versus available limits.
Debt-to-Income (DTI): The ratio of total monthly debt payments to gross monthly income.
Statute of Limitations: The legal timeframe in which debt collectors can sue for payment.
Pre-Approval: Conditional confirmation from a lender on how much you may borrow.
Consolidation: Combining multiple debts into one with a lower interest rate.
Debt management isn’t about perfection — it’s about strategy. By tightening your credit habits now, you increase your buying power and secure better terms later. Think of it as pre-season training for homeownership — the more disciplined your prep, the smoother the win.
