Finance

5 Ways to Reduce Your Debt and Improve Your Credit Score

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Coming out of 2020, many Americans that have never really been in debt before are now finding themselves fielding calls from bill collectors and dreading the trip to the mailbox every afternoon. 2021 is on track to be a little bit better, but that doesn’t stop your debts from piling up or your credit score from steadily dropping. 

A good credit score is usually considered to be above 670, but the closer you can get to the maximum score of 850, the better off you’ll be. That’s hard to do if you’ve been out of work and are barely making ends meet. Now that things are improving a bit in 2021, it’s time to look at ways to reduce your debt and improve your credit score at the same time. 

Debt Consolidation

One way to reduce your debt and improve your credit score is through debt consolidation. Debt consolidation can help by giving you one monthly payment to pay instead of a bunch of little ones. Consolidating the debts on your credit cards and any loans you owe will help raise your credit score as well. 

If you’re looking for debt help you can even build some credit with a personal loan for when you have bad credit to start working your way out of financial turmoil.

Pay Off Past Due Balances

The fastest way to jumpstart your credit score is by paying off any past due balances you have on outstanding bills. It’s important to note that overdue balances weigh heavily on your credit score. Once you’ve paid off those late balances, you should start to quickly see some movement on your credit score. Remember, however, while paying off little past due balances might not cause much of a jump in your score, paying off more significant balances or several small ones can help you improve faster.

Pay Down Your Credit Card Balances

When compared to your credit limit, your revolving debt can have a high impact on your credit score. Set a goal to reduce your high balance credit cards first. Not only does it help your credit score, but it also shows lenders that you’re responsible and trying to get your credit score and your bills back on track where they belong.

Set Up Automatic Bill Payments

The most important aspect used in determining your credit score is your payment history. If you keep missing payment due dates, then you’re never going to get rid of your debt or improve your credit score. Take the time to set your bills up for automatic payments, meaning the money for your bills will come out of your bank account on a specific date every month. Just make sure that you have the money in the account to cover the payments, and you’ll never miss another one. This way, you know you’re not going to have to deal with a score drop due to a missed payment and can concentrate on other ways to improve your score. Again, make sure that the money is in your account ahead of time to avoid overdraft fees with your bank for the best results. 

Pay Off Your Smallest Debts First

Another way to get rid of debt and improve your credit score at the same time is by paying off your smallest debts. For example, if you have a couple of credit cards with $200 balances or a loan that you only owe $300 on, paying off those bills and not using them again is a great way to go. 

These are just a few of the best ways you can reduce your debt and improve your credit score at the same time. Remember, paying bills on time is essential, but the rest is important too.

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