Debt, if not well managed, has the potential to ruin several aspect of your life. It can make you depressed and miserable; it can also destroy any hope of living a life of financial freedom. Debt is an archenemy of your credit rate, and if not well managed can wreak havoc on your chances of obtaining a loan in the nearest future. So, with that being said, how do you repay your debt and repair your credit?
Ways to Get Rid of Debt and Fix Your Credit:
- Halt Your Credit Card Spending
- Ensure You Don’t Miss Payments for Your Current Credit Commitment
- Pay Off as Much Debt as Possible
- Don’t Apply for Excessive Credit at Once
- Settle Your Most Expensive Debt First
- Get a Second Job and Reduce Your Debt Aggressively
How to Get Out of Debt and Fix Your Credit?
Your credit rating and credit report are two major things lenders review to determine your creditworthiness. A bad credit rating will scare of any lender, leaving you in a precarious situation (if you are in dire need of a loan).
Halt Your Credit Card Spending:
One of the effective ways to settle your debt and repair your credit rate is to stop accumulating debt, and the best way to achieve that is to stop spending with your credit cards. To do that, you can either remove them from your wallet or hide them when you want to go shopping. Or, if you aren’t disciplined enough, you can simply destroy them and request for a new one after you are done paying your debt.
If you continue spending with your credit card, you’ll end up racking in more debt which may end up damaging your credit score.
Ensure You Don’t Miss Payments for Your Current Credit Commitment:
Late payments or non-payment are bad. They can damage your credit score and deny you the opportunity to acquire a loan in the future. This also applies to bills (all of them), not just those for credit (though these are very significant).
Pay your rent, mortgages and all utility bills early enough. Credit reference agencies often make use of your history of bill payment to ascertain your creditworthiness. Hence, each time you make early payment it enhances your standing.
Pay Off as Much Debt as Possible:
Two things affects your credit utilization score and they are: the amount of money you owe and the mix you have of credit accounts. Thus, it is an awesome move to reduce the total as much as you can. If you eventually pay off a credit or store card completely (and can resist the urge), it’s an awesome idea to leave this open but with a zero balance. This will be viewed as positive in terms of your credit rating.
If you are finding it difficult to get out of debt, you can contact a credit counselor. Most credit counseling is free and is regarded as one of the best and easy ways to settle your debt. All that is needed is your compliance and commitment.
Don’t Apply for Excessive Credit at Once:
Deciding to open a new form of credit may be a bad ideal because it causes a hard inquiry to be inputted against your credit record. Multiple credits in a short period of time can plunge you more into debt and reduce your credit score as well. Ensure you don’t apply for credit you don’t require, even if you feel it can enhance your credit mix. Multiple credits not only affect your credit score, they can also make you spend above your means amassing more debt.
Settle Your Most Expensive Debt First:
Arrange your credit card interest rates in descending order, then focus on the card with the highest interest rate first. By doing so, you will be increasing your payment on the credit card with the highest yearly percentage rate while still making minimum payment on the other credit cards. This will help you repay your debt on time and fix your credit rate.
Get a Second Job and Reduce Your Debt Aggressively:
One of the best ways to prevent damage to your credit score is to repay your debt on time; as failure to do so (especially when 30 days late), can wreak havoc on your credit rating. Acquiring a second job will provide you with enough cash to repay your debt and build or repair your credit rating.
You can decide to pick up a menial job, like a lawn mower, a waiter or waitress, a babysitter, etc. so that you can have two streams of income which would help you repay your debt quickly and avoid making late or no payment that could harm your credit score.
Working two jobs may be hard, but you need to make this sacrifice to repay your debt. After you must have settled all of your debts, you can drop the second job and go back to living your normal life.
What Can Hurt Your Credit Score?
Do you feel like you need the help of an expert to know what is affecting your credit score? Or do you feel you need to be a rocket scientist to understand certain things regarding your credit score? The good news is that, you don’t, it is quite straightforward.
The following actions can negatively affect your credit score:
- Missing Payments
- Using Excessive Available Credit
- Applying for Multiple Credit in a Short Time
- Defaulting on Accounts
Lenders review your credit score to determine how likely you are to repay your debt, therefore, one can say that these scores play a significant loan in your desire to acquire a loan. To ensure that you don’t damage your credit score knowingly or unknowingly, it is important you are aware of the actions that can affect your credit score.
Let’s take a closer look at each of them:
Missing Payments:
Your payment history remains one of the most significant parts of your FICO score, and even a 30-day late payment or a missed payment can have a terrible effect on your credit score. It is therefore advisable that you make payment before the due date to escape the risk of being punished (in the form of late fees) or having a damaged credit rate.
Using Excessive Available Credit:
High credit utilization can be a warning sign to creditors that you are overly dependent on credit. Credit utilization is often evaluated by dividing the overall revolving credit you are using by the sum of your entire credit limits. Lenders are always happy to see a credit utilization below 30% or 10%, which is far better. This ratio accounts for 30% of you FICO score.
Applying for Multiple Credit in a Short Time:
Every time a lender asks for credit reports to determine your creditworthiness, a hard inquiry is inputted in your credit record. These inquiry can stay on your file for as much as two years, not only that, it can drag your score down (slightly) for a period of time.
Lenders often view the number of hard inquiries to determine how much of a new credit you want. Multiple inquiries in a short time can indicate that you are in a pressing financial situation, or you are finding it hard to acquire new credit.
Defaulting on Accounts:
There are several types of negative account information that can appear on your credit report, they are: repossession, charge-offs, settled accounts, foreclosure, etc. All these can badly damage your credit for many years, even a decade.
Conclusion:
You need to repay your debt on time to avoid having a damaged credit report which has the potential of destroying your chances to acquire a new loan in the future. With the right repayment tactic and commitment, you can repay that debt of yours even during recession.
People adopt diverse tactics in repaying their debt, some use debt relief techniques that help them save money when repaying their debts, while others adopt tactics that help them to repay their debts in a year. Some of these techniques work for specific types of debts which is why it is paramount you adopt a technique that suits your needs.
Aside from the above-mentioned techniques, if you find yourself drowning in debt, you can seek professional help. This help which often come in the form of programs created to help debtors repay their debts by offering them guides on how to manage their debts and finances, can be your pathway to financial freedom. Make your decision and take action!
