Have you ever tried to buy a car or house, or obtain a credit card, only to find out that your credit score is too low, or debt-to-income ratio is too high? It may feel like a crushing defeat, but it is not the end of the world. You can easily lower your ratio and increase your credit score, although it may take a little more time. Below are a few simple ways to help pay down your debt, and improve your score.
Lower the Interest Rate
If you have a history of making payments on time, try negotiating with the loan holder for a lower interest rate. This, in turn, could lower the amount due every month. While this option can save you money, keep in mind that it may extend the term of the loan, so technically you could still pay more in interest. Which leads to the next tip?
Pay a Little Extra
One way to pay off the loan faster is by paying a little more. For example, you owe $5,000 on your credit card, and make monthly payments of $100. However, at that rate, with the extra interest, you are looking close to a decade before that card is paid off! Even an extra $50 per month could cut the timeframe by more than half, and save a few thousand dollars in interest.
Cut Out Expenses
This may sound easier said than done, but with a little discipline, it is definitely possible. Consider your monthly expenses, and everything you would not mind doing without. Cable, perhaps? Internet? How about not going out to eat as much? Even if you downgraded the first two, you could still save about $25-50 a month, money that could easily go into savings, or towards the revolving payments. You will be surprised at how quickly that all adds up.
Get Rid of Delinquencies
A late payment hurts your score severely, especially if it is reported to one of the three bureaus. But what about a delinquency that you know is inaccurate? If this happens, take a look at your credit report, and find any payments that look out of place. By calling or writing, you can overturn any discrepancies you may notice, and see your score increase.
If you experienced your first delinquent payment and have a history of making payments on time, ask if the penalty can be overturned. Many places are willing to help you if you mention that you simply ran into financial trouble.
There are many other solutions, and they require discipline as well. However, with those four tips, you could easily save money and your credit in no time!
About the Author: Jeremy is a freelance writer with LexisNexis Risk Management and enjoys writing about debt management and fraud prevention as it applies to both businesses and individuals.
Photo: Michael Melrose
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