Adulting is hard. Keeping up with your finances is even harder, especially if you have no clue what debt is and how it can be handled. Debt can easily become a life wrecking situation if it is not handled correctly. Defaulting on a loan is ‘no bueno’ and can prevent you from making any significant advancements with your life. Handling debt correctly can cause major positive impacts to your credit score and help you to get that dream 700+ credit score everyone wants nowadays. Here are 3 tips on handling debt and helping you to create a magical credit score:
You Don’t Have to Carry a Balance on Your Credit Card to Raise Your Score
Avoiding carrying a balance on your credit card and paying off the balance once the statement is received is one of the best ways to handle your debt. If you cannot pay the whole balance, it is best to make sure that no more than 30 percent of your credit is used on the card. Once you go over the 30 percent mark on your card and avoid using, as it can negatively impact your credit score.
There are Different Kinds of Debt
Some debit is better than others. Having a mortgage, for example, is a much better kind of debt than a credit card balance. So, what’s the difference between good debt and bad debt? Good debt is long-term debts such as mortgages and some student loans (granted, I don’t think many people agree that student loans are a “good debt”), whereas bad debt is things such as credit cards, auto loans, and personal loans that are short term (within 10 years) and have high interest rates.
Now, that doesn’t mean bad debt is necessarily “bad,” it should just be paid off as quickly as possible since it costs more money in the long run. ood debt typically has a smaller interest rate and costs you less.
There are Different Methods to Paying Off Debt
Paying off debt has to work with your personality. I know, that sounds weird, right? Paying off debt won’t happen by paying that minimum amount due on your statement without costing you excessive amounts of money in interest.There are two major ways to pay off debt.
The first method is the avalanche method and works best for numbers people. This method works by paying the minimum payments on all your debt, then use any additional funds to pay towards the debt with the highest interest rate, eventually working towards paying off the debt with the lowest interest rate.
The next method is the snowball method.
Aside from paying your minimums, you would put any additional funds towards the smallest debt, then work your way up to paying off the largest debt. Here is a video explaining these methods in a much better way.
Debt is crazy, but with some motivation, time, and serious will power, it can be managed effectively and and, ultimately,benefit you. Also, if you’re looking for some great financial information on budgeting, debt and creating a lasting savings account check out the Financial Diet on Youtube. I promise you won’t regret it. Comment below your best debt management advice, and help spread the wealth of knowledge.
Featured image by Mason Wilkes from Unsplash.