Repaying creditors can often be challenging especially if your outstanding loans have become excessive. To make the process easier, it is important to come up a with a plan on how you will repay your creditors.
If you can’t and need help then find out more here – how does a debt management plan work?
Below are some top tips on how to manage your debt.
1. Pay Your Creditors on Time
35% of your credit score is usually attributed to your repayment history. If you have missed a repayment date with a creditor, ensure that you settle any due amount as soon as possible since it will make a huge difference on your credit score. Note that credit reports will track if you are late on your payments by 30, 60, or 90 days.
2. Monitor Your Credit Reports
Ensure that you monitor your credit reports so as to ascertain that they are accurate, and, to also find out the areas where you can make improvements. You can get free annual credit reports by visiting www.annualcreditreport.com. Note that requesting for your credit reports through either of the following ways will not have any impact on your credit score.
3. Try to Pay More than the Required Minimum
At all times, try to repay more than is due. This may help improve your credit score not to mention that it will help you cut your loan interest and shorten the debt repayment period.
4. Know Your Credit Limit
Remember that being close to your credit limit can negatively affect your credit score. To avoid damaging your credit score, try to always ensure that your balance revolves under 30% of your credit limit.
5. Understand Your Debt-to-Income Ratio
When deciding how much credit you can borrow, lenders usually consider the total amount of money you owe compared to how much you make each month. To get better credit facilities, work on keeping your DTI ratio under 35%.
6. Only Borrow When if it is an Absolute Necessity
Only apply for, and open new credit facilities when you need them. Opening too many open and unpaid lines of credit can negatively affect your credit rating and quickly lead you to unmanageable debt.
7. Check if You Qualify for Cheaper Credit
Regularly check if you currently qualify for lower interest rates on your old debts. This may happen if rates lower or if you improve your credit score. If you are a Wells Fargo customer, you can visit the ‘Check My Rate Tool’ to find out your current rates and expected repayment dates without affecting your credit score.
8. Don’t Make Impromptu Decisions When It Comes to Closing Your Accounts
Closing existing credit accounts can lower your credit limit and even hurt your credit rating in the short term. If your credit accounts boast of a zero balance or you have maintained a good repayment history, consider keeping them open.
9. Maintain an Emergency Fund
Having ‘liquid cash’ in a savings account which you can easily access can help you avoid using your credit account when unplanned expenses arise.