Follow these strategies for paying down credit debt and tackling poor scores.
For such a short string of numbers, credit scores sure carry a powerful financial punch. Credit can positively or negatively impact your interest rates, help or hinder your reaching future goals, and bolster or weaken your sense of financial security.
But that’s not to say you have to live in fear of your credit score! Empower yourself to take control of your finances by facing your credit head-on — and then taking the proper measures to protect or improve it.
Ready to tackle that score and come out on top? Here are a few tips to get you started.
Problem: I am saddled with debt
Solution: Lay out your best debt repayment plan
Don’t be afraid of your debt (well, you can be a bit). Though a common financial woe, debt repayment can also help you raise your credit score. When you regularly contribute to your debt repayment, you demonstrate positive repayment behavior. This repayment history is then reflected favorably in your credit score and credit report.
Two of the most popular approaches to paying off debt are the snowball method and the avalanche method. One focuses on psychological wins while the other focuses on paying the least amount of interest over time. Here’s a quick breakdown of how to approach each:
- Snowball method: List out your debts from smallest amount owed to largest. Focus on paying off the lowest debt amount first. Then pay off the next-smallest debt amount. And so on and so forth until all are paid off.
- Avalanche method: List out your debts from highest interest rate to lowest interest rate. Focus on paying more toward the debt with the highest interest rate while paying minimums on the rest. Once the highest interest debt is paid off, roll over that payment to the next-highest interest rate debt while continuing to pay minimums on the rest. Continue to “avalanche” down until all debt is paid off.
Both methods have pros and cons, but the most important pro for you to consider is whether one will work better for you specifically. The most effective debt repayment plan is always the one you’ll stick with for the long term.
Problem: I need to improve my score
Solution: Focus on strengthening good financial habits
Lenders use credit scores as a metric for measuring a borrower’s creditworthiness. In theory, the higher the credit score, the lower the risk a borrower presents to a lender.
But a lender still looks at more than a credit score when evaluating a borrower. Lenders also consider past payment behavior among other financial habits. So even if you have an excellent credit score, it’s important to continue focusing on strengthening good financial habits.
Problem: I’m not sure if my score is good or bad
Solution: Check in regularly with your credit report and score
Make it a normal to-do to check in with your numbers. Track your credit score. Check your credit report.
Habits like these empower you to understand exactly what’s happening behind the scenes of your finances. They also prevent you from being surprised by a negative mark or an error on your credit report.
Tip: While your credit score is a good metric to use, it’s not the only barometer of financial health. Scope out your credit report for a more robust look into your finances.
Remember, no matter where you stand, you can raise your credit. Poor credit can be frustrating and even downright scary. But credit is a long-term commitment. While you likely won’t raise your score by 100 points overnight, you can improve your score over time. (Yes, you.)
If you’re struggling to make payments, don’t wait to voice your worries. Schedule a call with a financial planner or your lender to talk about your options.