The best way to pay off debt and raise your credit score is to repay balances with the highest interest rates first. This will reduce the overall cost of repaying the debt and make the task easier because the total amount you owe won’t be growing as fast. Always make at least the minimum payment due for each balance every month, though. Keeping all accounts current will help raise your score, or at least prevent it from going down. Beyond that, just try to budget as much as you can for paying off debt each month in order to bring your balances to zero as soon as possible.
In addition to the overall strategy of paying off your most expensive debt first while staying current on other balances, make sure to explore options for reducing the cost of what you currently owe. If you have good credit or better, balance transfer credit cards and debt consolidation loans could help you get a lower interest rate. With a lower rate, more of your monthly payment amount can go to your principal balance, speeding up the time it takes to pay off debt.
You might also consider consolidating through a home equity loan or home equity line of credit, which offer extremely low APRs but are secured by your house. Another option is a debt management program, in which you work with your creditor(s) to set up a payment plan, often with a lower interest rate and reduced payments.
Best ways to pay off debt and raise your credit score:
- Pay at least the minimum amount due on every account each month.
- Spend as much as you can afford on monthly payments toward your most expensive debt – the balance with the highest APR.
- Make sure to save a bit each month, to give yourself a safety net in case of unexpected expenses.
- Lower your interest rates with either a debt consolidation loan or a balance transfer credit card.
- Consider tapping into home equity through a home equity loan or HELOC.
- Enroll in a debt management program and create a payment plan.
Paying off debt is good for your credit score because it reduces your debt-to-income ratio while establishing a good payment history – both of which are major factors in raising your credit score.
It may take at least a few billing periods before you’ll notice any significant improvement, though. A lot depends on your starting point as well as how responsibly you manage the rest of your finances moving forward.
To track your progress, you can sign up for a free WalletHub account and get free daily credit score updates plus personalized advice.
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