The Best Way to Pay off Debt and Raise Credit Score

Fewer things are worse than having a bad or poor credit score.

For starters, a bad credit score effectively ensures you won’t secure a bank loan, and if you do, you’ll be charged exorbitant interest rates. With bad credit, a landlord can reject your tenant application. Even a prospective employer can deny you a job, especially if you’re seeking a financial or accounting job.

Yet, this is the predicament millions of Americans find themselves in, mostly because of unpaid debts.

Are you in the same situation?

Continue reading to learn the best way to pay off debt and raise credit score.

The Link Between Debt and Credit Score

If you’re not a personal finance expert, you’re probably wondering what’s the link between debt and credit score.

Well, when you take out a loan, the lender will check your credit report. They’ll then be able to see your credit score and determine whether it meets their lending requirements. Lenders can also use your credit score to set interest on your loan.

If you’ve got good or excellent credit, getting a loan isn’t a big deal. And if you’ve got bad credit, you stand a good chance of getting approved if you’re applying for a bad credit loan.

Now, here’s where it gets interesting.

If you start making irregular loan repayments or default on the loan, your credit score will take a hit. Your lender will probably sell it to a collections agency, after which the credit rating bureau will pick up the information. If you’ve got multiple debts in collection, your credit score will fall significantly.

The Best Way to Pay Off Debt and Raise Credit Score

When your credit score falls as a result of unpaid debt, there’s only one way out: repaying the debt.

However, paying off debt is often easier said than done. This is why you need to strategize on how to become debt-free.

Start by listing all your debts along with the interests they charge.

Next, choose a repayment plan. An effective strategy is to go in for a debt consolidation loan. You’ll take out a consolidation loan and use the funds to clear all your other outstanding loans. These loans have lower rates, which means you’ll likely save money.

Consolidation doesn’t work for everyone, though. For instance, you might not qualify for the loan. When this is the case, you can use other debt repayment strategies, such as focusing on paying off the loan with the highest interest first.

It’s also possible to negotiate alternative repayment plans with your lenders. It might not seem doable, but most lenders are willing to revise terms of payment so that defaulting borrowers are able to pay off their loans.

After you’ve paid off your loans, your credit score will start to rise.

Pay Off Your Debt and Enjoy Improved Credit

Falling in debt is easy, but climbing out of it is hard. Unfortunately, when you fall into debt, your credit score falls along with you. But having read this guide, you now know the best way to pay off debt and raise credit score.

Keep reading our blog for more personal finance tips and insights.