If you want to improve your credit score, there are a few steps you can take that will potentially make short-term improvements, and strategies that are a bit more long term.
One long-term strategy is to pay off all your outstanding debt. How much debt you carry determines up to 30% of your credit score, so reducing that amount will help boost your score. But it can be difficult to pay off debt especially if you carry large balances.
You need a plan; a strategy for paying off credit cards and loans as quickly as possible. Two possible approaches you could take are the Avalanche method and the Snowball method.
First you need to tally all your debts. Make a list of credit cards, student loans, car loans, etc. (excluding your home mortgage), including their respective balances and interest rates. You’ll use this information to plan your next move.
The Avalanche Method to Paying off Debt
To pay off debt using the “avalanche method,” you arrange your debts by interest rate. Zero in on the balance with the highest interest, and throw all the money you can at it. Keep all other payments at a minimum, but dedicate every extra penny to paying off the credit card or loan with the highest interest. Once you finish paying it off, move to the next item on your list and focus on that one. This creates an “avalanche” effect, knocking out your most expensive credit cards first until you’ve annihilated all your debt.
In the long run, the avalanche method saves you the most money. When you carry a balance with a high interest rate for a long time, you’re literally paying for the privilege of being in debt. The longer you carry that debt, the more you pay in interest. Therefore, the sooner you can pay off a high-interest loan, the less you pay in interest over the life of the loan.
The Snowball Method to Paying off Debt
The Avalanche method isn’t for everyone. Some people prefer the “snowball” method, which involves zeroing in on your lowest balances first, regardless of interest rate. With this method, it will be easier and faster to pay off your lower balances. The short-term victories will give you the motivation to keep going, ultimately creating a “snowball” effect that builds momentum until you’ve wiped out all your debt.
Whether you choose the snowball or avalanche method depends on your personality. If you have a hard time sticking to a budget, then the snowball method may be just what you need to stay motivated. If you’ve a numbers person, then you’ll appreciate the avalanche method since it saves you the most money. But the end result is the same: a debt-free you!
Check back with our blog for more credit repair advice. For professional credit repair assistance, call Lexington Law at 855.620.5875 for a free credit consultation, and read some of their reviews on our site.