So you have decided to face up & Get Out of Debt & take steps toward removing it. First of all, congratulations–you’ve already made the first and most crucial step by simply confronting the issue. And while knowing how to escape debt has a learning curve, it can be achieved.
To assist with this learning curve, this article will discuss how to get out of debt by taking actions, like outlining a get out of debt plan, lowering your expenses, establishing a budget and following at least one of the proven debt relief procedures.
Look at your bank and credit card bills and add up all your debts, including your credit card debts, mortgage, car payments, payments, and any other debts you may have.
Knowing this information can allow you to determine precisely how to escape debt, and if you may need expert aid.
Based on how many credit cards you are dealing with, how much you are paying interest, and some other things, your choice of which method to use to repay debt could be simple. All the following methods involve applying additional income towards your debt each month until it’s repaid. So in the event you don’t have extra money coming in, you might want to think about additional debt relief options. But, let us consider these first.
The debt avalanche method makes it possible to save money by eliminating your highest-interest debt, and is very likely to save you the most money on interest compared to other methods. This might be the right get out of debt plan for you if you have several credit cards with higher interest rates as it eliminates high-interest,”poisonous debt” first.
Here’s how to get out of debt using the avalanche method:
- Identify which of your credit cards has the highest interest rate. If you have more than one card with the highest rate, choose the card that also has the highest balance.
- Each month, pay as much as you can toward paying off that card.
- Pay only minimum payments for all other cards.
- Once you’ve paid off the card with the highest rate, move on the next highest-interest card and repeat.
Together with the debt snowball method, you use your extra cash to pay off the credit card with the lowest balance first, which is a fantastic option for those who have a good deal of cards with low quantities. You may not eliminate your entire debt quite as efficiently as you would with the debt avalanche method; but with the debt snowball method, you will eliminate individual debts quicker and find a sense of accomplishment sooner.
Here’s how to get out debt using the snowball method:
- Identify which of your credit cards has the lowest total balance due.
- Put as much money as you can toward paying off the balance on that card as soon as possible.
- Pay only minimums on the other cards.
- After paying off that card, move on the second-lowest balance until you work your way to the highest.
Ways To Build Credit Without Debt
You don’t necessarily need to open a new credit card or take out a loan to set up a credit score. The same is true if you would like to improve a score that has been bruised and battered by financial missteps. These alternatives probably won’t ship your score soaring into the 800s, but they can help you establish a credit history or bump up a terrible score.
Sign up to have rent payments reported to the credit bureaus.
Finally, DeLeeuw and her husband could rent an apartment by putting up a large cash deposit. Once a rental agreement was set up, they asked the building manager to report their rent payments to the credit bureaus. “She agreed, and that is how we started building credit without actually taking on debt,” DeLeeuw said. “We simply made sure to pay our rent on time.”
So does VantageScore. However, most older versions of FICO that are widely used today do not consider leasing to be a tradeline that gets reported to the credit reporting agencies. In fact, FICO estimates less than 1 percent of credit reports contain leasing information.
The fantastic news is that there are a few services you can sign up for that will report your lease activity, usually for a small charge, although they may not partner with all three of the major credit reporting agencies. Your landlord also must agree to participate. Rental Kharma, by way of instance, costs $25 to install and then $6.95 a month. It also lets you have 24 months’ worth of payments retroactively reported to Transunion for an extra $60 fee. Rent Reporters requires a registration fee of $94.95 and then a monthly fee of $9.95. Enrollment includes up to two decades of back payments, which are reported to TransUnion and Equifax
Get added as an authorized user
One of the simplest ways to establish credit without needing to put yourself into any type of debt is to get added as an authorized user to a longstanding, high-limit card of a relative or close friend, said Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan.
Authorized users basically piggyback on the credit history of the principal account holder. The card is reported on the authorized user’s credit reports, and they’re permitted to make purchases with the card. However, authorized users have no legal responsibility to pay the balance. “This tactic can help build your credit from scratch or improve your already recognized bad credit,” Foguth said. “It can also boost your and length of credit history, which are two contributing factors to your credit score.”
Keep in mind that as an authorized user, you don’t actually have to have access to the card or use it in order for it to show up on your reports. As long as the primary cardholder uses the card and pays the invoice in time, your score should benefit.
Also bear in mind that being added as an authorized user will not necessarily have a huge impact on your score. The credit agencies give less weight to authorized user status as you’re not really the one responsible for repaying the debt. Still, this strategy can bump up your score, especially for those who have a thin credit file.
“Boost” your score with utility payments
A strategy recommended by Mark B. Huntley, co-founder of this credit advice site Credit Knocks, is signing up for Experian Boost.
This free tool was created to help people with lean files beef up their charge by showing responsible behavior in areas which are not typically reported to the credit bureaus. By signing up for Experian Boost, you can get credit for paying telephone and utility bills on time.
“You can sign up through the credit agency and select which of your bills you’d like reported,” Huntley said. By giving Experian access to your bank accounts, the agency will comb through your trades to locate the payments which qualify. “Experian claims their boost, normally, increases the consumer’s credit rating 13 points.”
There are a few limitations to this service, however. For one, it only improves your Experian FICO score — Equifax and TransUnion will not get updated payment information. It also only applies to the FICO 8 scoring model, so you won’t find an improved score in other versions. And you must pay your bills via your bank account; credit card transactions don’t count.
The fantastic news is that it is completely free and does not require that you open any new accounts. Additionally, Experian ignores derogatory payment history and just pulls from the positive, so you don’t need to worry about getting dinged for previous mishaps. Just pay your bills on time along with your Experian score should find a boost (though there’s no guarantee it will).
If you’re confident that you know how to get out of debt on your own, then you’ll want to get started on your plan right away. However, you may need some help reaching your financial goals. Freedom Debt Relief can help you understand your options for getting out of debt, including our debt relief program.