It doesn’t take much to accumulate a lot of debt. However, once you have it, it seems hard to dig out from under. Having a lot of debt can tie up all your extra money and make you cash poor. It can also make you more likely to make a few late payments and then put you at risk of having a poor credit score. Once this happens getting any future loans other than a payday loan may prove almost impossible
Learning to manage your debt will allow you to focus your efforts on paying down the debt that can affect your credit score negatively first. If you do this before you have trouble making your monthly payments on time, you can then move onto the rest of the debt after that without damaging your good name.
Good Debt/Bad Debt
Having a mortgage and a car payment, and a couple of credit cards with minimal balances can actually work in your favor. It shows that you own a home and are able to make timely payments. However, once you cross the line of having just a few credit cards and have many with the available credit on each card either at the limit or very close to it, you now lose points for having what lenders view as poor and irresponsible spending habits.
Paying Down Debt
In order to raise your credit score back up to a desirable numbers such as 720 or better, you need to focus your efforts on paying off your credit cards first. There are several ways to do it. You can apply for a new credit card that offers balance transfer interest free for a year or so or take out one of the online installment loans to free up the credit cards and make one lower monthly payment. You can also opt to take the credit card which has the highest interest rate and pay that one down first and then move onto the next one. Whichever method you choose, the end result is the same, your credit cards balances will be low and help to improve your credit score.
Cutting Back on the Extras
While on the recovery from excessive debt, it’s wise to double down your efforts and cut back on the extra things you don’t need to buy. This can include things like your morning coffee, dining out weekly and impulse shopping trips that end up costing far more than you anticipate. By doing this, you’ll pay off your debt much faster and once again enjoy having cash back in your pockets.
Sometimes you just don’t have the extra money to pay more than the minimum payment on your credit cards. As a result your balances remain stagnant and you end up paying far more in interest. If you currently are struggling just to pay the minimum due each month, you can take on a part-time job for the short term until you get a few of the cards paid down.
Unless you have bags of money hanging around, having some debt is essential to sustaining a good credit score. However, abusing your credit lines by maxing out all of your credit cards out of necessity or poor spending habits will harm you. Learn how to manage your debt and you will maintain a healthy credit score, so that when you truly need a loan, you can get it.