Your credit report and debt are tied together. The more debt you have, the worse your credit score will be. Banks will be less willing to lend you money, and if they do, it will be at higher interest rates. Debt reduction isn't the only way to improve your score, but it helps.
Correct Credit Report Errors
Fix any credit report errors. Request annual free copies of your credit report from the three major credit bureaus -- Equifax, TransUnion and Experian -- through the Annual Credit Report website. Review your report and dispute any errors immediately. Doing so will increase your credit score since negative items will be removed.
Pay On Time
Always pay your bills on time. Not doing so hurts your credit score since your payment history accounts for 35 percent of your tally. If you are behind on your bills, thus falling in debt, change your habits so that you don't miss any payment deadlines. You score will improve as your regularly pay bills on time since it will show you are capable of doing so. If you need help remembering, talk to your bank about setting up an automatic bill payment system.
Save With a Budget
Create a monthly budget. List your sources of income. Then note your expenses, such as grocery, mortgage payments and so on. When your expenses exceed your income, you will go deeper into debt. A budget helps you map out where you are spending money so you can cut excesses and start saving money to pay back loans.
Follow Snowball or Avalanche Plan
There are two common thoughts on how to pay down your debt: the snowball and the avalanche. The snowball effect means taking your lowest outstanding debt and paying it off, then moving on to the next one, thus snowballing until you reach the highest amount. The avalanche means beginning with the debt that carries the highest interest rate and moving on down. Pick whichever method works best for your personal situation and pay extra with each payment to get rid of your debt more quickly.
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