If you’re like me, one of your major bills every month is to pay that darn minimum payment on your credit cards. Imagine how nice it would be to rid those type of bills from your life and bring up your credit score? Here I’ve rounded up some of the best tips to help you get out of debt and increase your credit score.
Tips for Becoming Credit Card Debt Free
Make the decision to stop borrowing money: In order to get out of debt, you need to stop getting into debt. This means no more financing or signing up; doing so will help you focus on getting out of debt and will help you pay off those bills faster.
Create a budget: In order to create a budget, it’s suggested to build an Excel spreadsheet which includes your monthly income and expenses. By taking a good look at your expenses, it will be easier to see where your money is going and what you can cut back on. This is a great time to change your habits. See where your money is going; do you really need that coffee from the gas station or Starbucks in the morning? Can you pack a lunch rather than eating out at work? These are small changes that can ultimately whittle away at, diminish and, eventually, wipe out a full credit card balance.
Pay off your most expensive debt first: If you have multiple credit cards, take a look at the interest rates. The card that holds the highest interest rate is the card you should pay off first and be paying more than the minimum. With all your other cards, continue paying the minimum until the highest one is paid off. Once the highest one is paid off, move to the next highest in interest.
Transfer balances: This is a brilliant tip for paying off your high interest credit cards. What you do is pay that card with a new credit card which has a zero-interest balance transfer/rate fee. Usually these interest rates begin in a few months on a new card, so you need to make sure you can pay it off before the new interest begins.
Stop using money that’s not yours! Leave all your credit cards at home until you have your finances under control.
Use your work bonuses or tax refund toward debt: This might make you feel a little sad because you won’t be able to get those new shoes you wanted but the more you pay, when you can, the faster you will be out of debt.
Earn extra cash: If you have anything in your home collecting dust, get rid of it! Also, you can earn extra cash by picking up more hours at work or finding a second job.
Reward yourself: Once you hit a milestone and pay off a full credit card, you need to reward yourself. Whether it is a nice dinner out or a weekend camping trip, this will keep you motivated to retain the good work.
Have an emergency fund: Most people use their credit cards as an emergency fund. By having an actual emergency fund, it will eliminate the need to open any more credit cards once you are debt free. It is recommended to save a minimum of two months pay for your emergency fund.
Tips to Increase your Credit Score
Pay your bills on time: Any delinquent payments and collections have a negative impact on your credit score.
Only open new credit accounts as needed
Limit credit check inquiries
Pay off your debt
Protect your identity
Give it time, reducing debt or becoming debt free doesn’t happen overnight: Any delinquencies and other reports, positive or negative, can impact your score for seven years. Also, some bankruptcies and unpaid tax liens remain on your report for 10 years. Inquiries can remain on your report for two years. A good tip is to contact the collection agency to ask for a removal of the negative report–if you’ve paid the debt.
I hope this article will help you to become debt free. I myself will be using some of these tips. As always, thank you for reading! And here’s a bonus tip from our FCF editor-in-chief:
“Did you know you could negotiate a pay off for a seriously delinquent credit card bill? If the bill collectors are calling, try this. Answer the phone and offer “X amount” of dollars to close the account today. On a $6,000 balance, I was able to close the account for $1,200. That’s all I had. That’s all I offered and it worked. So, your tax refund can stop the headache. I negotiated a pay off for 2 additional cards with high balances, and now I’ve been living credit card debt free for over a year now. I don’t have to cry anymore because they are not calling, not harassing me. And, don’t worry, I’ve promised myself to never get into this type of unnecessary debt again.”