3 Easy Ways You Can Pay off Debt Faster While Raising Your Credit Score Immediately.
The Path To Good Credit
Credit Scores Are A Mystery.
Staying on top of your personal finances can be a chore. Keeping out of debt, while paying off the debt we have and trying to save for the future can be impossible without a plan in place.
We all want to get out of debt faster and most of us would like our credit scores to be higher because we know that by increasing our credit scores, we have access to better interest rates and more financing power in general.
However keeping your score high is a puzzle for most of us. So let me ask you a question.
How much do you owe on your credit cards and what is your available credit? When you have a lot of credit being used compared to your available credit it can hurt your score.
This is called your credit utilization ratio, and it has the largest impact on your credit score out of any factor that you can actively manage, except for a bankruptcy.
So how is your credit utilization ratio calculated? Simple, take the amount you owe and divide by the total amount of credit you have available.
Like this; if you have two credit cards with a combined credit limit of $5,000 and you have $1,200 charged between both cards your utilization rate is 24%.
Total Debt Owed / Total Credit Available = Credit Utilization Ratio
$1,200 / $5,000 = 24%
What Is A Good Ratio?
There are a lot of factors that affect your score, and you utilization rate may have less affect than someone else’s. But a simple rule of thumb is that a higher utilization rate equals a lower score.
So if you continuously pay down your credit amounts you will raise your score by leaps and bounds when you lower the utilization rate. Plus you gain points for making your payments on time and keeping your accounts current.
For a goal, try to keep your credit utilization under 25%, this should minimize any negative effects on your credit score.
How Long Does Credit Utilization Impact My Credit Score?
This is some really good news, credit scoring agencies, like FICO, monitor this rate in live time. This means that if you pay off a significant portion of your credit cards your score will likely increase the next time they report your balances.
This is great for you since I am about to show you some ways you can pay down your debt quickly and raise your score faster than you knew possible.
Zero Percent Interest Transfer
Take advantage of a new credit card offer if your credit is in decent health. Many new cards have an introductory rate of 0% interest for 6 to 18 months. While you have the introductory rate you can transfer your current balances to the new card.
This may cost about 3% in transfer fees, but the advantage is that while you are not being charged interest all the payments that you make will push your balances lower at a much faster rate. This will help lower your utilization ratio more efficiently and in turn raise your credit score much faster.
Be careful with this option however, since you can easily slip right back into your old habits and max the new card out as well as the old ones. Make sure you are committed to getting out of debt before you take this option
Also this is not a good habit to get into, you should never think you can do this repeatedly and benefit every time. Eventually you will have to pay everything back, so this should be a "one and done" tactic.
This may be a good option to help you tackle credit card debt. This strategy involves getting a small personal loan from your bank, and using the money received to pay off your credit card debts.
This option probably won’t save you as much as a zero percent interest transfer but it will give your credit score an almost immediate boost. This boost will come when your credit card reports your new balance of zero and your credit utilization goes down to nothing.
This is a grade A way to raise your credit score swiftly, but again, be sure you don’t slip into old habits and start charging those cards with new purchases. That’s not the way to keep your score high or stay out of debt.
Remember to that you will have interest on the personal loan, this interest should be less than the interest that was on your credit card so that you can save money over the course of the loan.
Aggressive Repayment Plan
Target your debts in order from least to greatest. Pay the first debt off and roll the payments into the next debt on your list. Keep doing this and you will be debt free faster than you ever thought possible.
Best of all is that while you are aggressively paying down your balances your score will increase on an almost monthly basis.
This is probably the best way you can pay down your debt in the long run, because paying your debt this way can save you tens of thousands of dollars a month once you’ve finished. In fact, I can show you how to put almost a year’s worth of wages back into your pockets here.
Managing Your Personal Finances
These are some ways you can boost your score and pay down your debt more effectively. You can even use my 4 Step Plan with the other strategies on this list to save yourself even more money.
Managing your debt is one of the most important things you can do for your personal finances. In almost every case when your debt goes down your wealth goes up.
Debt can cripple even the strongest families, and the the highest earners; it can keep you from living the life you want. Make the decision to get of debt and stay debt free, because this decision is one of the best ways for you to improve your life.