Let’s face it, we’ve all been there. You’ve enjoyed a fun and indulgent spending spree, and yes, you charged everything to your credit card. One month and many blissful purchases later, you find yourself facing a huge credit card bill. You don’t have the money to pay for it, so you pay the minimum balance due. This is dangerous, and in many cases, can cost you your credit score – and ultimately your financial future.
Keeping a high balance on your credit card can incur a lot of interest. The longer you leave debt on your credit card, the higher interest charges become. And consequently, it becomes harder to pay off your credit cards completely. Because of this slippery slope – late payments, accounts slipping into collections and worse – you can get red marks on your credit report, which can hurt your ability to do just about anything.
Sadly, it’s true. Just about every aspect of your financial and professional lives is impacted by your credit history. When you apply for a job, the potential employer can check your credit history and decide whether or not to hire you based upon your credit report. Your ability to obtain a loan is also impacted by long-standing debt. When you give your Social Security Number to a lender, they have the ability to go through your financial records and decide whether it’s safe to give you a loan.
Unemployment, of course, also contributes to a dropping credit scores. Many people are turning to credit cards to pay for life’s necessities, such as groceries, when they lose their jobs. If you’ve gone years without paying off a credit card bill entirely, this debt can follow you and impact your credit score for many years. After seven years, in most cases, a negative mark will be removed from your credit report. In the meantime, though, you may be denied employment, a loan or other financing.
However, there is an opportunity for redemption. Pay off your credit cards gradually over time to improve your credit. Ultimately, the ideal situation would be to pay off everything completely, but that isn’t always an option. The best thing you can do – if your primary goal is to improve your credit score – is to start with the credit card with the highest utilization. Credit utilization is simply how much credit you use (balance) compared to how much credit is available to you (limit) – the lower, the better. A utilizations over 50 percent will hurt your credit score, so you will want to tackle the debts that have high balances compared to their limits first.
While you’re concentrating on a single debt, make sure you pay the minimum balance on your other cards. The more quickly you reduce your credit card debt and utilization, the easier it will be to improve your credit score. This could take months, and in some cases, years.
Either way, the point here is to pay off at least a little bit on each card’s balance. Once you’ve paid down your debts to below 50 percent of their limits, then you’ll want to focus on paying the credit cards with the highest interest rate first. This will ensure that you pay less in interest over time that can add to your debt, while also reducing the pressure of dealing with multiple cards with intimidating balances.
Resist the temptation to keeping charging to your credit cards, and refuse to accept new ones. Once you’ve gotten debt down to the point that you can breathe, make a vow not to use your credit cards until you’ve paid off every card in full.
Check your credit report often. Keep an eye on your score’s rise and fall, and keep spending to a minimum. Over time, you will find it easier to resist the urge to use that little plastic wonder.
For more tips and tools to help you improve your credit, visit Quizzle.com, where you’ll get access to a Credit Personal Trainer to help you whip your credit into shape and affordable credit monitoring to track important changes to your credit report.
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