If you feel like your credit situation is like quicksand and you're sinking further and further into debt, you must create a plan of action to dig yourself back to financial freedom. You must first come face-to-face with the reality of your credit situation, and then formulate a strategy of paying off your credit cards by allocating more money toward your debt each month. Once you figure out your own methods of paying down your debt, you must commit to seeing your plan through until you're debt free.
Credit Report
To begin fixing your credit and getting yourself out of debt, you must first understand where you stand. Everyone in the U.S. is entitled to free copies of their credit reports from the three credit bureaus (Experian, TransUnion and Equifax) through the Annual Credit Report website (see Resources). Your credit reports create a portrait of your financial history, including your debt-to-credit ratio and how responsible you have been about making payments. One of the quickest ways to improve your credit score is to report any errors that you find on the report in writing, with documentation, to both the credit bureau and your creditor.
Interest Rates
One way to reduce your payments and pay off your debt more quickly is to reduce your interest rates. Gather any credit card offers you've received to come up with a target rate in preparation for negotiating with your creditor. Call you credit card company and let the representative know that you would like a lower interest rate. If you've been a cardholder for a long time, let them know that as well. In the event that you cannot get a lower interest rate by speaking to the representative, speak to his manager. Call back another day if you can't negotiate a lower rate right away.
Budgeting
One of the top factors in calculating your credit score is the timeliness of your payments to bills, and when you create a budget you plan for things like credit card payments, which makes it easier to pay them on time. To create a budget, track your spending for a week and break your purchases down into categories. Multiply the week's total by four and a half, then add in any recurring monthly payments, including your credit card bills. If your expenditures are closer to your take-home income than you would like it to be, make adjustments as necessary. By making your credit card payments part of your budget, you won't be taken by surprise when the payment deadline draws nearer---and it's easier to plan to pay more than the minimum each month.
Payoff Methods
Financial experts generally come from one of two schools of thought when it comes to paying off your credit cards. There are those who believe that you should pay the card with the highest interest rate first, since interest accumulated over time ends up multiplying your debt. Others believe in the psychological rewards of the snowball plan, which suggests paying off the card with the lowest balance first to get motivated by seeing each of your payments make a significant impact. Whichever method you believe will work best for you, choose one and stick with it. Only when you're committed to paying down your debt will you be able to boost your credit score and emerge from debt.
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