One of THE most asked questions about a debt management program is, “Will a debt management program hurt my credit score?” Debt management is intimidating enough for many people, but for your financial future, it’s also essential to protect your credit as you move forward. You’re dealing with debt, so the last thing you need is to ruin your credit for years to come. The good news is that debt management programs are a much safer and better option than bankruptcy or debt settlement when it comes to your credit score.
Paying off debt and increasing your credit score isn’t an easy thing for most people to balance. On the one hand, the top priority is to get out of debt as quickly as possible. Since being debt-free will help your credit rating anyway, this is definitely a positive goal. However, protecting your credit can create some complicated situations where you’ll need to make some tough decisions. For example, should you pay down one debt at a time or spread your payments out across all of your accounts?
Many consumers benefit from taking advantage of free consumer credit counseling to help them make decisions like this. With the help of a professional, you can get personalized advice with a look at your income, expenses, debts, your credit report, and your long term financial goals are all taken into consideration. There’s a lot to understand about how best to navigate paying off your debts and protecting your credit for the best financial future. Below, there are some tips to keep in mind to better understand the decisions you may need to make.
Always Pay Everything On Time –
The first rule for protecting your credit while managing your debs is to become meticulous about your payment schedule. This is not just for your credit card debts. While working on debt management, it is essential that you become more careful about all of your accounts. This is no time to forget to pay your electric bill.
It’s easy to become focused on paying off your accounts and let other things fall through the cracks, but you want to avoid having any negative marks appear on your credit report.
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Consider using an online app for tracking your budget and scheduling payment reminders. If you feel comfortable, setting up automatic payments can be a way to ensure your payments will always happen on time.
Increasing Your Credit Limit –
There are many factors on your credit report that come together to create your final score. One factor is known as your utilization rate. This term means the amount of credit you are using versus the amount available to you.
As a general rule, for a great rating, consumers want to be using less than 30% of the credit available to them. So if they have a credit card with a $6,000 limit, they never spend more than $2,000 on that card.
While paying down your debts, one way to improve your utilization rate is to ask your card carrier to raise the limit on your card while still not adding any more to the debt on that account. Simply calling your card company on the phone is an easy way to make this request. They’ll be more likely to approve it if you have a healthy income and a history of on-time payments on this account.
Paying Off Your Debt –
Another consideration for improving your utilization rate is which debts you should pay off first. Common wisdom says to pay off the debt with the highest interest rate first. This may be the best path. It is certainly the cheapest path.
However, if your primary goal is protecting your credit score, you may prefer to spread your payments out across your accounts. By lowering your debt across the accounts, you can lower your utilization rate across the board.
This is a serious decision. Discussing this at a credit counseling session, whether in-person or over the telephone, is highly advisable. A credit counseling session should always be free. There should never be any fees associated with the counseling portion of things.
Stay On Top Of Things –
When working to get out of debt, it is common for people to become stressed and attempt to avoid dealing with their finances altogether. Facing your finances head-on is the only way to successfully become debt-free and improve your credit rating. Don’t let the stress intimidate you. Get professional help when you need it and handle everything that comes up with your finances as soon as possible, so it doesn’t wear you down, and make a bad situation worse.
Staying on top of things during this process will look like performing a regular review of your budget and spending, checking your credit report regularly, and proactively addressing any issues that arise. Paying down debts and improving your credit takes time. You won’t see any changes overnight. The more action steps you can take towards improvement, the better. You’ve got this and Advantage CCS is always here to help! We’ve been helping people pay off their debt and improve their credit since 1968! Give us a call at 1-866-699-2227 or visit us online at www.advantageccs.org