Your Credit Score: How to Improve the 3-Digit Number That Shapes Your Financial Future (Gal Zentner's Library) by Liz Weston

Author:Liz Weston
Language: eng
Format: epub
Publisher: FT Press
Published: 2012-06-29T16:00:00+00:00

Step 3: Choose Your Path and Take Action

When faced with unappealing choices, it’s natural to procrastinate. But after you’ve assessed your situation, gathered the relevant information, and sought expert help, the path you need to take should be pretty clear.

Option 1: The Pay-Off Plan

If you can pay off your unsecured debts without help or with the help of home equity borrowing, you’re ready to take the first step: cutting up your credit cards. “What?” you might be saying. “Cut up my cards? How can I live without my cards?” News flash: People do it all the time.

You can’t get out of debt if you keep digging. And if you have easy access to your cards, you’ll keep using them. Your credit cards need to be off limits until you’re debt free. Debit cards with Visa or MasterCard logos are accepted at most places that take credit cards; the difference is that the money comes directly out of your checking account, so it’s much tougher to overspend.

You don’t need to actually close your credit card accounts, which could potentially hurt your score, unless you really have an uncontrollable spending issue.

Next, set up an automatic payment plan as outlined earlier to pay off your debts. The order in which you pay them depends on your particular situation. If you have an account that’s close to being charged off, for example, you’ll probably want to catch up with that one right away while paying the minimums on your other debts. If you’re not behind, you could start paying down the account that’s closest to its limit, or the one that’s charging the highest nondeductible interest rate. After the first debt is retired, redirect the biggest payment to the next-highest-rate—or closest-to-the-limit—debt. Continue this pattern until all the debts are retired.

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