Getting out of debt is one of the best things that you can do yourself to boost your finances. It’s even better for your finances if you’re able to boost your credit score. Although paying off your debt and building your credit score have numerous similarities between them, they’re quite different. However, they work together, and doing well with one will almost certainly mean you’e doing well with the other. This is why many tend to join them together as one.
If your credit card debt is very high, you’re going to have a low credit score, especially if you don’t pay it back in time. But if you have low debt and timely repayment, then you have a high credit score. With a low credit score, you’ll have fewer opportunities, and it’ll be more challenging to access utilities and other financial products. If you lack the money to pay off your debts soon enough, you might have to deal with even worse negative consequences.
You could easily become overwhelmed if you’re unable to pay your debt and can’t find a way to boost your credit score. This article mentions a few things you can do to help you get out of debt and increase your credit score.
- Write down your debts.
Knowing your debts is the first step to repayment and being debt-free. You must, first of all, list out all of the loans that you owe with your credit cards as well and be sure how much your debt is. Then write the minimum amount that you’re paying monthly for each one and their due dates.
Organizing your accounts and debts in this way is vital to ensure that you pay back all the debts and increase your credit score. It’ll reduce the possibility of you missing out on a debt payment. You’ll find this important because one of the most significant factors in calculating credit scores is payment history. If you don’t default on timely payment, then you’ll likely have a healthy credit score.
After listing out your debt, start to plan on how to pay them off as soon as possible.
- Use rent reporting services.
You can build your credit with rent reporting services as they ensure that your credit reports include all of your payments. It is a known fact that many of the people that don’t seem to have a good credit history pay their rent in time. However, when this information doesn’t reflect on the credit reports, which happens a lot, it affects their credit scores.
While you’re unable to report your rent payments on your own, rent reporting services will ensure that your credit report includes your rent payments without stress. Although this might come at a cost, it’s good for your credit scores.
To effectively use rent reporting services, you must know the credit bureau that your payments are reported to and the credit scores taking the payments to the account. Note that building your credit scores with the three credit bureaus isn’t a good financial idea, so you should know your alternatives.
- Know your options
Apart from helping to boost your credit, paying off your debt in time can also save you money. You can attack debt payment with two methods: debt snowball and debt avalanche methods.
The debt avalanche method involves making a minimum payment per month on your debts, excluding the one with the biggest interest rate. Keep making these payments until you clear off the debts, focus on the debt with the biggest rate, and do the same until you clear it off.
The debt snowball method doesn’t save you money like the other method but gives you faster wins. With this method, you start with the smallest debt irrespective of interest rate. Focus more on the smallest debts and pay minimally to other debts. After paying that off, move to the next smallest debt, and so on.
Paying your debts late can seriously damage your credit and also cause you to pay extra, so it’s important to be timely with payment. Schedule your bill payments if you have to, put it on autopay and give it enough time to process the payment to prevent late payment and help increase your credit scores.
- Don’t leave out utilities and other similar bills
You could pay too much attention to clearing debts that directly affect your credit score, such as credit card debt and loans that you neglect your rent and utility bills.
Utility bills, when unpaid, are sent to collections while paying rent late multiple times might cause eviction. When your account is sent to collections, it will reflect in your credit report, which can damage your credit for many years.
There are utility companies such as internet providers, water, electricity companies that create hardship programs to cater to low-income people. This could be reducing their payment permanently. Confirm if your provider offers these assistance programs and see if you qualify for any.
It’s impossible to talk about boosting credit scores without also discussing debt repayment. It’s a major factor that’s considered. This article discusses some of the ways to help you handle your debts and also boost your credit.