5 Credit Repair Tips to Get You Out of Debt
Getting into debt isn’t something anyone plans to do, but it happens. Luckily, there are ways to get yourself out of debt and start fresh.
To get out of debt and stay out of debt, you should evaluate the behavior that got you there in the first place. By taking a look at your credit report, then making changes to your spending habits, current debts and interest rates, you can work toward improving your credit score and getting out of debt once and for all.
Here are some ways to get started on clearing up your debt and repairing your credit.
1. Check your credit report and dispute any inaccuracies
Mistakes happen, but you don’t want them on your credit report. If you find accounts listed on your credit report that don’t belong to you, take action immediately. Wrong information on your report could be dragging down your credit score and might even be a sign that someone has tried to steal your identity. Checking your credit report regularly is your first line of defense against errors that can cost you dearly in the long run.
You are entitled to one free credit report from each of the three main credit bureaus (Experian, Equifax and TransUnion) every 12 months at AnnualCreditReport.com. And you can check your credit score for free through My LendingTree. If you do find a mistake on your credit report, you can dispute the error with the credit bureaus through their online portals, by phone or by mail.
2. Evaluate your spending habits and make a budget
If you’re having trouble keeping up with your debts because you’re spending too much, take a look at your spending relative to your income. Are you spending more than 30% of your income on rent or a mortgage each month? Do you have a penchant for high-end clothing, dining out or other luxuries? A budgeting app like Mint can give you a breakdown of your monthly spending by category to help you see where you’re going wrong.
Understanding the root cause of your debt can not only help you start to fix your credit issues and get out of debt but also help you avoid falling into the same patterns in the future.
3. Ask for better interest rates
Sometimes, the rate you’re given on a credit card or loan isn’t the best one available. High interest rates can significantly increase the amount you owe, especially if you’re not paying off your balance every month.
It may be possible to negotiate with your lender or credit card company for a temporary decrease, or even a permanent lowering, of your interest rate. If you’ve always made your credit card payments on time, this might be an option to help make your debt more manageable.
4. Work with a credit repair company
You don’t have to go about credit repair alone. While credit repair companies cannot remove any legitimate negative information from your credit reports, they can help dispute and remove inaccuracies and provide a roadmap to a better score, which may help you get out of debt. Before paying someone for this service, be sure to research the company thoroughly. LendingTree’s credit repair page could help you compare credit repair companies in your state.
5. Consider refinancing your debt
It might sound counterintuitive to take out another loan to better manage your debt. But there are times when consolidating or refinancing your debts can save you money in the long run. If you have debts from high-interest credit cards, moving them to a personal loan might help reduce the amount of interest you’ll pay, if you qualify. You could also consider an introductory 0% APR balance transfer credit card, which could buy you extra time to pay off card debt interest-free during the introductory period.
For auto or home loan debt, you might consider refinancing to save on interest. For example, an auto loan of $20,000 at 15% APR for 60 months will cost you a total of $8,548 in interest alone. But if you refinanced to a new loan at 8% APR, you’d pay $4,332. That’s an extra $4,216 you could be putting toward your debts.
Compare the total costs over the life of the loan and any applicable fees to make sure you’ll see a benefit by consolidating your debts. And keep in mind that you’ll still be responsible for the full amount.
The bottom line
When looking at ways to get out of debt, consider what’s at the root of your debt and credit problems. Taking a hard look at your credit report is a good first step. Then, you can decide whether you need to lower your interest rates, take out a loan, work with a credit repair company or all of the above. In the end, understanding how you got into debt can help empower you to improve your credit, reduce debt and change your financial situation for the better.