How Personal Loans Impact Credit Scores
Often, a personal loan has the potential to help you from a credit score perspective. Just be sure you make every payment on time. If you open a personal loan and pay it late, it could damage your scores significantly.
Dont Stick To Minimum Payments
Minimum monthly repayments tend to be set at very low levels. These are sometimes as low as 1%,plus fees, interest and charges but most will be higher.
If you only make the minimum repayment, your debt could take decades to pay off and you could pay thousands of pounds in interest.
Here are some tips:
- Aim to pay off the entire bill each month so you wont pay any interest at all. With a standard credit card, if you always pay off your monthly bill in full, you can enjoy between 45 and 56 days of interest-free credit.
- If thats not possible, pay off as much as you can and work out a repayment plan.
- Dont use the cards for cash withdrawals.
Lenders are required to suggest higher affordable repayments. If you dont respond, or ignore the issue, and the situation persists for more than 36 months this could lead to your account being suspended.
Don’t Be Ashamed To Use A Food Bank
Food banks can provide emergency food supplies. A typical food parcel will contain at least three days of tinned and dried food.
You can search for your local food bank online, but to visit it youll need to be referred by a professional, such as Citizens Advice, a doctor or a social worker.
Find out more: learn more about being referred to a food bank from the Trussell Trust.
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Remember That Not All Debt Is Bad
Some debts are actually seen as good debt by lenders. In general, if you have borrowed money to purchase something that will increase in value, this debt is seen as positive by lenders.
Having a good payment history on student loans, traditional mortgages, and money borrowed to grow your business all fall into this category. That doesnt mean that you shouldnt repay these debts. On the contrary, paying off good debt can only increase your net worth in the future.
Your Credit Card Debt Questions Answered
Your credit utilization ratio measures the amount of credit youre using compared to your cards credit limit. If you dont carry a balance, your credit utilization is 0. A high utilization rate may indicate youll have a hard time paying your credit card balance on time, so a lower utilization rate is better for your credit score. You should aim to have a credit utilization ratio of 30% or less. Anything higher can damage your credit score. Not using your card enough can also affect your credit score because lenders wont be able to measure your creditworthiness.
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Sell Old Furniture Clothes And Toys To Make Some Cash
Root through your wardrobe for clothes you rarely wear or hunt down the toys any children or grandchildren have grown out of. As long as theyre in a reasonable condition, you may be able to make some money by selling them.
The best place to do so is eBay, but you could also try Gumtree, Preloved, Facebook Marketplace, or if you have a smartphone: Shpock.
Find out more: weve got further tips for making money online.
Transfer A Balance To Another Credit Card
You can go straight to this step or consider it if your credit card issuer refuses to lower your APR. Transferring a balance to a card with a 0% introductory APR can temporarily halt the growth of your balance, assuming you’re not charging any new purchases to the card during this time. This can make it easier to pay off, but if you can’t do so within the introductory period, any remaining balance will begin to accrue interest at the card’s standard APR.
You must also be mindful of balance transfer fees. They’re listed in your cardholder agreement. It’s often a percentage of the balance you’re transferring and it will raise the amount you have to pay back. Make sure you’re comfortable with this before you proceed with a balance transfer.
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How Debt Consolidation Works
A third method you can use to pay down credit card debt is known as debt consolidation. Debt consolidation is the process of using a new loan or credit card to pay off the existing balances you owe. The goal with debt consolidation is to secure new financing with a lower interest rate so that you pay off your debt faster and save money.
The three primary types of debt consolidation are as follows:
With any type of debt consolidation, its important to make sure you stop overspending on your credit cards. If you pay off your cards with a new financing, but run up a balance on the original accounts again, you could set yourself up for severe financial and credit problems later.
Also, if you plan to apply for new financing, its best if your credit score is either good or excellent. It is possible to qualify for debt consolidation financing with bad credit, but you might not be eligible for an interest rate that makes the process worth your while.
Know Your Negotiation Options
Before negotiating with a credit card company on your own, you should get familiar with the types of settlement options that are typically available to consumers. If the credit card company is willing to entertain the idea of a debt settlement, then the odds are high that they will want to make one of the following arrangements.
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See The Full Financial Picture
Before you can pick a strategy for paying off your debt, you need to fully understand what you owe. Start by itemizing your debts, which will help you to focus on paying them down more efficiently. Also, note both the minimum payment for each debt and your monthly interest rate.
Dont try to guess and pull numbers out of the air. Look up your user agreement or call the customer service number to find out exactly what you owe and how much interest youre being charged. Youll need the exact numbers for each piece of information when considering your various debt repayment strategies.
Map Out A Repayment Plan With A Debt Avalanche Or Debt Snowball
There are two main schools of thought when it comes to credit card debt repayment.
The first, the debt avalanche method, focuses on paying off your cards with the highest interest rates first, and then, once those are paid off, moving to those with the lowest interest rates. This approach makes the most mathematical sense, since youre shortening the amount of time youre paying off the credit cards that are charging you the most money.
The other tactic is the debt snowball method. This is specifically for people who struggle to stick to a debt reduction plan when there seems to be no end in sight.
Popularized by personal finance expert Dave Ramsey, the debt snowball focuses on paying off your smallest debts first, then your next-smallest balance, and so on. According to some behavioral economists, eliminating small debts early on in the paydown process can be a worthwhile mental reward that helps some people stay motivated to stick with it.
This isnt quite as cost-effective as paying off the high-interest debt first, but if it gives you the motivation to buckle down and pay off your debts, it might be the preferred route.
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Should You Move Your Debt To 0% Interest
If you receive credit card offers in the mail, you may be tempted to move your debt over to one of the cards that offer 0% interest for the first year. Before you immediately jump on the offer, you need to read the fine print. What percentage does the interest jump to after the first year? If after the 12 months it jumps to 22% or 23%, it doesnt make sense to change gears. The companies that offer the 0% are betting that you dont read the fine print, and you dont pay everything off in a year.
Other things to consider are balance transfer fees. These can differ but a standard fee is 3%. So after transferring your balance, you would be adding on another $300 to your debt.The only time it may make sense is if your new card will be offering a substantially lower interest rate. If this is the case, it may be worth the transfer fee but make sure you do the math first.
For simplicity sake, I would not bother with card transfers. I would focus on paying your current credit card off asap and avoid putting anything else on credit.
How To Pay Off Credit Card Debt
Using credit cards regularly can be a great way to build your credit history and take advantage of rewards and benefits along the way. But overspending and unexpected financial challenges can result in a mountain of credit card debt.
You can start paying off your credit card debt by tallying up how much you owe and listing the balance and interest rate for each card. Once you have an idea of what you’re dealing with, here are a few different strategies you can use to start paying down your credit card debt.
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Use A 0% Balance Transfer Offer
If you cant quite manage to pay down your debt right away, you can at least buy yourself some time by taking advantage of a 0% balance transfer. Typically, these types of balance transfer offers last for one year, and sometimes up to 18 months. If youre temporarily falling behind in paying down your debt but anticipate better times ahead, this might be just the kind of breathing space you need. Bear in mind that most balance transfer offers advertise a 0% rate but also charge a 3% to 5% fee at the time of the transfer.
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How To Negotiate Credit Card Debt
Thomas J. Brock is a Chartered Financial Analyst and a Certified Public Accountant with 20 years of corporate finance, accounting, and financial planning experience managing large investments including a $4 billion insurance carrier’s investment operations.
If you’re facing financial challenges that are making it seem impossible to pay off your credit card debt, then negotiating with your creditor to reach a settlement agreement may be an option to consider. And you don’t necessarily need to hire a debt settlement company to do ityou can negotiate a deal on your own if you approach it with some knowledge and determination.
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Can You Be Sued By Your Creditor
If you owe monies to your creditor and have stopped making payments as agreed, there is a chance that your creditor will sue you. However, launching a law suit isnt free your creditor will incur significant professional and administrative expenses. It is possible for a creditor to sue a debtor and not to recover a penny from them. Your creditor will be much more inclined to sue you if they are confident the odds are high that they will actually recover monies from you.
1. When might your creditor be inclined to sue you?
Your creditor might sue you under the following three conditions:
- The dollar amount owing is significant enough
- The relevant limitation period on the debt has not expired
- You own real property in your own name
Most large creditors in Canada will not sue regarding outstanding accounts of less than $4,000. This threshold for suing could be significantly higher depending upon the creditor.
Creditors are not likely to sue consumers if the relevant limitation period, or statute of limitations has expired such a suit would not likely succeed.
2. When might your creditor not be inclined to sue you?
To learn more about the likelihood of being sued, read the article, Nine Reasons Why Your Creditor Might Never Sue You.
3. What will a creditor do when it intends to sue you?
In event that a creditor wants to sue an account, it might do one of the following:
Consider Nonprofit Credit Counseling Or Financial Assistance
Credit counseling agencies do a lot more than just create debt management plans. If you’re having a hard time making heads or tails of your debt situation, a .
For example, they can review your debt situation, help you create a budget, explain your options, review your credit report with you and also provide some educational courses. Many agencies do all of this for free.
If your financial situation is dire, you may also consider seeking financial assistance. This may come in the form of rent relief, food stamps, legal aid and other assistance programs from federal and state agencies, as well as nonprofit organizations. You can use the 211 network to find programs in your area.
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Consolidate To A Lower
The No. 1 rule when it comes to paying down credit card debt is to stop the bleeding as soon as possible. In addition to stopping your credit card spending, transferring your balances to a lower-cost loan might be a temporary help. While youll still be accruing interest on your debt, cutting your interest rate can help slow the compounding effect. For example, if you have $10,000 in credit card debt at 18% and consolidate that to a 6% personal loan, you could save $1,200 per year in interest costs.
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Join Freecycle For Free Furniture And Homeware
If you need furniture or homeware but cant afford it in your current budget then you may still be able to get it for free.
Websites like Freecycle or Freegle have searchable recycling communities where people post Offered and Wanted adverts. While most will require you to collect, it can be a great place to pick up anything from armchairs to washing machines.
Find out more: Visit Freecycle and Freegle for expected etiquette and to start your search.
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Use Your Cards Features To Stay On Track
Many credit card issuers offer tools on their mobile apps or online banking sites to help consumers easily manage their credit cards. These features can be really handy, explains Davidson. CIBC has alerts that tell you when your payment is due. We also tell you when a purchase is made, and there are ways that you can set thresholds for spending, she says. And theres a history of all of your transactions, so you can be sure that all of the purchases are ones youve made.
Dont Forget To Reward Yourself Along The Way
Getting out of debt and improving your credit score is hard work. Whenever you meet one of your goals, set aside a reasonable reward to celebrate your hard work.
Whether its a day trip, a special night out, or some other treat, make sure that it fits your current budget and savings goals. This is not an excuse to splurge. Its simply a moment to breathe and appreciate yourself and the sacrifices youve made.
Its also great to keep a supportive friend or relative updated on your progress. Theyll be there to help keep you on track when youre tempted to spend on something beyond your budget. Theyll also be there to give you a high-five when you reach your latest milestone. Community is important in all of lifes endeavors, whether its someone in real life or even an online support forum.
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Create A Budget And Stick To It
The more money you can pay toward your credit card debt each month, the faster you’ll eliminate what you owe.
If you don’t already have a budget in place, start by writing out your average income and expenses over the past few months. Categorize each of your expenses to get an idea of exactly where your money is going. Then you can pinpoint areas where you can cut back and repurpose those dollars for debt reduction.
If you’re living paycheck to paycheck, this step can be tough. Even if it’s just a few dollars extra a month, though, it can make a difference in the long run. Do what you can to create a budget and continue looking for opportunities to earn or save more in the future.