If you have mounting credit card debt, it is vital for your credit worthiness, and future borrowing ability to get the debt under control. If you have accrued mounting credit card debt, you want to reduce your credit card debt without damaging your credit score. One of the first means of doing so is to begin paying down your credit card balances, every month. This may require smart budgeting on your part. Reducing your credit card balances will improve your credit card score immensely, upwards of 30% actually. Part of your credit score is your over all debt and outstanding balances. Of your FICO score, how much you owe on credit cards and loans is 30% of your credit score. For the competitor to FICO, Vantage Score, what you owe accounts for 23% of your credit score.
How much of your available credit you have used is a ranking factor for your credit score. This is known as your debt to limit ratio or your utilization ratio. When reducing your credit card debt, you want to reduce each cards balance to 30% or less of each cards credit limit.Once you have lowered your credit card debt to less than 30% of your credit card limit you will have made great gains is improving your credit rating and reducing your debt to a manageable level. So when trying to reduce your credit card debt, aim for 30% of your overall limit.
Credit cards accrue interest every single month, often at higher rates than a loan. It may be in your best interest to consolidate your debts by taking out a consolidation loan to pay off any outstanding credit card debt and paying off one single loan versus many different credit cards with varying rates of interest. There are many online loans that are especially for debt consolidation. Debt consolidation often lead to an improvement in your credit rating by making your debt easier to manage and reducing interest payments. If you pay more than the minimum amount on your consolidation loan, you will pay off the debt quicker and be on the road to being debt free much quicker than just making the minimum payments.
Another option is to do a credit card balance transfer. Balance transfer credit card offers are designed to help consumers consolidate their credit card debt all onto one single account, there by saving money on interest charges. There are plenty of credit card offers which have a 0% interest for an introductory period. This period can last upwards of one year, depending on the offer. If you budget right and make sizable payments, you could be debt free or greatly reduce your debt to more manageable levels within as little as a year. If you do take advantage of a credit card balance transfer, and if it’s going to take awhile to pay off your debt, look for the longest 0% period possible. These offers will not harm your credit, in fact taking advantage of one of these offers can repair your credit and make your debt much more manageable. However one must look at the fine print with these offers and look at the interest rate after the introductory period is over, as some of these cards can have rather harsh interest rates following the low introductory rate. If you look for one these offers find one with a reasonable interest rate after the introductory rate, and try to find one that offers this rate for the longest period of time. Lastly use this extra time smartly, do not miss payments and make sure to pay as much as possible towards your debt.
This article was written by Steven Moore, who has been covering consumer finance and the credit card markets since 2006. You can learn more and connect at his Google+ page.