Finding Money to Reduce Your Debt and Improve Your Credit
Q. We set a goal to improve our credit in 2017. We have some small debts we need to repay, including a few credit cards. We have a tight budget, and we aren’t sure how to come up with the extra money we need to reach our goal. What’s the best way to find the money we need?
A. Deciding what you want is a good start. Now you need to come up with a strategy that can help you reach your goal of improving your credit. The single, most effective tool you have to improve your credit is to pay all of your bills on time every month, with full payments. If you’re already in the habit of doing this, then the next best thing you can do to improve your credit is to pay down your debt.
When you’re working with a tight budget, you may need to get creative to come up with extra money. But once most people get started, they build momentum, and finding additional funds can be a rewarding challenge.
If you’re anticipating a tax refund, this may be a good way to jumpstart your plans. Keep in mind that the IRS has changed the way they handle refunds, and that you will not be able to access your refund until mid to late February. Even if your refund comes a little later than usual this year, you can earmark it for repaying a specific debt.
In the meantime, don’t be wooed by companies offering tax refund loans. The money isn’t going anywhere, so be patient. You don’t need to pay fees on money that the IRS will return to you without a fee. Incurring additional debt is not the way to reduce to improve your credit.
Once you know the size of your refund, consider how you can allocate these funds. How many small bills can you pay off? Which debt has the highest interest rate? If you are paying late fees on any accounts, what will it take to bring them current so you can stop paying late fees? By paying down your debt, you can reduce your monthly payments and bring more money back into your budget.
You don’t necessarily have to use every dollar of your refund toward repaying debt. In fact, it might be wise to set aside a small amount of your refund for something fun. Just decide ahead of time what you will spend and what you will use toward repaying your debt.
Of course, a tax refund isn’t the only way to repay debt. I challenge you to track your spending and then look for ways you can cut back on small expenses, funneling this money toward your goals. One of the biggest mistakes that people make is believing that small amounts of money here and there can’t make a difference.
How fast do you want to improve your credit? Are you willing to take a part-time job? Is it possible to earn overtime at work? Apply extra income to pay off debts faster. Do you have items that you no longer use that you could sell? By selling unused stuff, you will be cleaning out your home while getting ahead.
With a little ingenuity and persistence, you will be amazed by how fast you can reduce your debt and improve your credit. The key is to get started and then build momentum, celebrating the small successes along the way. Little by little, dollar by dollar, you can reach your goals in the year ahead.
Bonnie Spain is the executive director of the American Center for Credit Education and Consumer Credit Counseling Service of the Black Hills. For more information, email firstname.lastname@example.org.
The material in this transmission is provided for personal, non-commercial, educational, and informational purposes only. ACCE makes no representations or warranties with respect to the accuracy or completeness of the contents of this transmission and assumes no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. You should consult a professional where appropriate.