Having a bad credit record not only signifies your inability to maintain financial discipline, but also prevents you from qualifying for loans in the future. However, you may have personal reasons for not paying your debt on time. If you’ve made mistakes or facing financial issues that could be impacting your credit score negatively, there are few ways to help you vindicate yourself. Here are some tips to get you started.
1. Learn your interest rates and pay off highest-rate cards first
Credit card payment works in two ways: you can either pay off the credit card with the highest rate first or the one with the lower balance first. The former option is called the debt avalanche method, while the latter is the debt snowball method.
If escaping a bad debt is your top priority, it would be best if you started by paying off the highest-rate cards. The debt avalanche method involves making lump-sum payments to that specific card each month. This option likely has less time and allows you to save money, depending on the finance charges.
Once you’ve paid off the highest-rate cards, move on to the one with the lowest interest rate. Maintaining such a pattern not only proves you’re financially disciplined, but also gives you the peace of mind knowing you’ve eased your financial burden. As long as you check your credit card statements every month, you won’t have a hard time determining which ones to pay off first.
2. Double your minimum payment
In a case-scenario where your minimum payment is $500 every month and you choose credit card as your payment method, you’ll realize that the debt is accumulating. The interest charges also keep getting higher, lengthening the time to pay off the debt. Your situation may worsen if you miss one payment, further dropping your score significantly. This may make it more difficult getting back on track.
To ensure you pay your debt on time, consider doubling your minimum payment. Provided you set up an automatic payment on your account, your credit score will improve. So, if it’s a minimum of $500, make it $1,000. This prevents your credit history from worsening even if you have a late payment.
3. Apply any extra money in your budget to your payment
If you’re struggling with paying your loans on time, how about combing through your budget for spare change. Look for unused subscriptions and find a way of creating breathing room. For example, if you spend $80 on phone bills per month and you’ve realized that you hardly make calls, it’s time to slash some extra money in your budget. You can readjust it to $60 and direct the remaining $20 to pay off your loan. With time, you’ll notice how life can adjust even if you lower your cost of bills.
4. Split your payment in half and pay twice
Most lending institutions allow you to pay your loan once or twice a month, depending on your convenience. However, the easiest way to escape bad credit is by practicing bi-weekly or fortnightly payments, instead of once a month. The trick is to chop down your payment more quickly and, in the process, lower the amount of interest you’re supposed to pay on your debt.
The rationale behind making bi-monthly payments is to reduce loan balance accrued interest every day. More money goes to the principal instead of the interest. So, if you pay on the 1st of the month, the payment goes to the interest. The payment made on the 15th automatically goes to the loan principal. Remember, not all loan services allow bi-monthly payments, but it can be a good idea if yours allows it.
5. If you can’t make the payment on time, get a small loan to cover it
An unexpected life event can prevent you from paying off your loan on time, hurting your credit history. Whether you’re going bankrupt, or facing a financial crisis, there is no reason for not servicing your loan on time. One way of ensuring you’re not late in your payment is taking advantage of small loans for bad credit to cover it. As long as you have a good credit history, you won’t have a hard time getting a loan to service another one.
While this may seem like a riskier financial decision to make, it’s better than having a bad credit record. With time, look for avenues to increase your income like a side hustle. In the long run, you end up paying off both loans and having a good credit record.
Wrap Up
Paying off your debts when you have financial and personal crises can be daunting, but limiting yourself doesn’t make it any better. But through these strategies you can cut down on your potential debt while saving enough money to budget for yourself.
