Lowering Your Debts so You Can Become Debt Free.
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Becoming Debt Free
Five Steps to Become Financially Healthy.
This year, choose a smart resolution that will positively impact your
pocketbook and your peace of mind. Make a pledge to reduce your debt and
boost your credit score. Lowering the amount of debt you carry can
significantly improve your credit profile, reduce the loan rates you could
receive and save you a lot in interest payments. It just takes a few easy
steps and a little dedication to take charge of your debt.
- Get the Facts- Collect all your account, loan and credit
information and go over the records with a fine tooth comb. Write down the
monthly payment, debt amount, interest rate and term of each debt on a
sheet of paper. Next, write down your total monthly income and list your
estimated monthly expenses. Order your
Credit Report online to get a baseline for tracking your
- Do the Math- Calculate how much you usually spend paying each debt
and how much interest that debt collects per month. Define which debts
need to be paid off first. Credit card debt and small loans should
probably be paid before low-rate student loans and home loans. A "yes"
answer to any of the questions below is a red flag for accounts that need
Which debts have the highest interest rates?
Are there accounts above 50% of their credit limit?
Do you have any debts that are close to being paid off?
Which debts have the highest annual fees?
- Negotiate and Consolidate- Start working on those high-interest
credit card debts first. Call your creditors and negotiate lower interest
rates or move your balances to less expensive credit cards. Accounts that
are above 50% of the available line of credit can harm your credit score;
pay off or move some of the balance to a different card. If you have a
credit card debt that is too large to handle, consider taking out a
personal loan from your bank for the amount. Your bank can probably give
you a much lower rate and a more lenient payment schedule.
- Refinance- After taking control of your credit card and small
debts, take a look at your major loans. Would it make sense to refinance
your mortgage? Could you consolidate some of your other debts into the
loan? What about cashing out some home equity to pay off a high-interest
- Stick to the Plan- Now that you have lowered your rates and
refinanced your loans, create a payment schedule and a monthly budget. See
exactly how much you can afford to pay each month by subtracting your
expenses from your monthly income. Divide the remaining amount between the
accounts, paying the most to the debts with the shortest terms and highest
interest rates. Create a payment calendar with the due dates and the
payment amounts you just calculated for each bill. Sign up for automatic
bill payment through your bank or register for online payments to keep you
on schedule. To continue to keep your credit on track, register for
Credit Monitoring online and you'll receive quarterly credit
reports, credit alert emails and trending charts that outline how much
your credit improves over time. Set goals for yourself and don't forget to
celebrate when you reach debt-removal milestones!
Get your credit report and score NOW!
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