How to Reduce Your Debt and Improve your Credit Rating
What is Debt?
Debt is a big problem in the United States, and it does not seem to be going anywhere any time soon. Consumer debt has been steadily rising for years and is now at $3.3 trillion. The causes of debt are varied and complex, but they can be boiled down to two main factors: income and spending habits.
Step 1: Make a Budget and Track Your Expenses
Step 2: Get Rid of any Extraneous Monthly Expenses
Step 3: Negotiate With Your Creditors
Breaking Down the Basics
Lenders and other financial institutions use your credit score to decide whether or not to give you a loan. Having a low credit score can make it difficult to get approved for loans and credit cards because lenders see you as too high of a risk. Start rebuilding your credit by making sure any debts are paid on time, paying down debts with high-interest rates first, and by looking into different loans that are available
Improving Your Credit Score
Low credit scores can mean higher interest rates when applying for loans. A person’s credit score is determined by the person’s credit history which consists of their payment history, outstanding debt, and any bankruptcies or late payments. If you’re looking to improve your score, start by paying off any outstanding debt and always make your payments on time.
The Difference Between Good & Bad Debt
There are two main types of debt, good and bad. Good debt is often associated with mortgages because they allow you to pay back the loan by making monthly payments. On the other hand, people don’t typically view low-interest loans as good because the interest rate is relatively high. The best type of debt for an average person is low-interest rates loans because they are able to pay off the loan. See more.
Improving Your Credit Score with a Plan of Action
You have a credit file that can determine whether or not you’re approved for a loan, the interest rate, and your credit limit. So before you head to the store with your newly-issued credit card, make sure you know how to improve your credit score. Debt Consolidation or Counseling can help.
1. Look for a company that actually provides old-fashioned budget advice and counseling. If they want to sign you up right away without first understanding your budget situation, move on!
2. Obtain copies of the contract and read it carefully before signing up. Make sure you understand all of the fees involved. Are there enrollment fees? “Voluntary” contributions? Monthly fees? Extra fees per account? These hidden fees can add up to big bucks.
3. Make sure they work with all the creditors on your list and not just some of them.
4. Don’t be fooled by a”non-profit” status. That doesn’t guarantee you’re dealing with a good company. And it certainly doesn’t mean the service is free!
5. Aim to find a local company that you can visit in person. Check out your target company with the local Better Business Bureau.
6. Make sure they provide support after the sale. Try calling their customer service number to see if you can get through promptly.
Remember, you can eliminate your debts if you take a disciplined approach to your finances, make a budget and stick to it, and don’t use your credit cards unless you can pay off new balances in full each month.
Good luck in your financial future!