Dealing with Debt

Debt is a major factor in your credit score.  If you have too much of it (or none at all) or if you have trouble repaying your debts on time, your credit score will plummet.  Keeping your debts reasonable and paid, on the other hand, will do more than almost anything else to improve your credit score.  Here are a few tips that can ensure that your debts actually help you boost your credit score:
 

Tip #89: Consolidate your loans to make repaying them easier

Having lots of loans and debt is one of the biggest reasons leading to poor credit ratings.  The larger your debts, the worse your credit rating and the more likely that you will find yourself with large monthly bills that are difficult to repay. 

Consolidating your loans means that you take out one large loan to repay all your creditors so that you only have one large loan to repay.  While the overall amount of the loan does not change - if you owed $20 000 to five different companies, you will still owe $20 000 but to only one lender - but the interest rates and monthly payments are usually quite smaller and this can help meeting your debt obligations much easier. 

Debt consolidation can be an especially good idea if you have lots of high-interest debt and lots of bills that are hard to keep track of.  One smaller monthly payment will be easier to remember and will help make bill time less painful.

Tip #90: Pay down your debts by making larger than minimal payments

If you only pay down the minimum amount on each of your loans, it will take you a long, long time to pay down your loans.  This is because most lenders only require that you pay down slightly more than the interest amount on your debt each month.  Even a debt of a few hundred dollars could take several years to repay this way. 

Paying down your debts by putting down more than the minimum required monthly payment can help you pay down your debts faster and so can boost your credit score.  Paying down more than you need to also shows lenders that you are in good financial shape and conscientious about your debts - two qualities that definitely make you an attractive credit risk to lenders. 

Tip #91: If you are taking out a new loan, consider putting down a larger down payment to take out a smaller loan

Doing all you can to take out a smaller loan - by putting down a larger down payment or buying a less expensive car or home (if that is what the loan is for), for example - can help ensure that you don’t overextend your credit and can help ensure that your monthly payments on the debt will be reasonable and affordable to you. 

In fact, for larger purchases, some debtors take out piggyback loans, most often for a mortgage.  They borrow money for a down payment, so that they can get a better rate deal on the larger second loan they take out to pay for the purchase.

Do your math before making a big purchase - you may find that a larger down payment - even if you have to borrow to get it - can help your credit by making your payments more affordable and by ensuring that you don’t overextend your credit.

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