financial health, pay off debt, good credit, credit card debt, student loans, mortgages, car loans, managing debt, manage debt, pay down debt, debt repayment, debt reduction goals, debt assessment Couple reviewing financial records Couple reviewing financial records Couple reviewing financial records Couple reviewing financial records
Your Money

Understanding Credit & Debt

Give Your Debt an Annual Checkup

Assess Your Situation, Then Set a Plan

Having a solid credit history can boost your chances of qualifying to buy the things you need, such as a home or a car, with financing that lets you pay for your purchases over time. It can also help you achieve financial goals to pay for the things you want, such as a vacation or a new home. One key to credit health is to watch and manage it carefully.

Nurturing healthy credit often starts with coming up with a game plan to tackle any debt you may have. Take the time at least once a year to know where you stand, relative to your debt, and develop (or fine-tune) your plan for managing it. Even those with a good credit score can benefit from reviewing their credit, monitoring for errors or potentially fraudulent activity.

Start With What You Can Do Now

If you're managing many debts, it could be helpful to prioritize them. Most likely, you'll want to pay down the balances with higher interest rates first.

If you have debt on multiple credit cards with higher rates, start by paying off the balance you can get to zero the most quickly, says Mary Hunt, the author of Debt-Proof Living: How to Get Out of Debt & Stay That Way. After paying off the smallest balance, she recommends rolling the monthly payment that you used to make on that account into the credit account with the next smallest balance, in order to repay that one more quickly.

Hunt says that ticking debts off your list will motivate you to stick with the program. "If the largest interest rate is my first priority, it could be many years before I reach my first zero balance," she says. "That would be like going on a diet and not losing any weight for three years. Who would stick with such a plan?"

What not to do: Don't casually roll credit card debt into a second mortgage or home equity line.

Save More to Live Better

You might pay down your debts more quickly if you come up with some extra cash each month either by reducing your spending, increasing your income or a combination of both.

You may need to make some trade-offs to pay down your debts. But once you do, you'll have more money to spend in the future. Start by preparing more meals at home rather than eating out or picking up takeout. You needn't give up all of your favorite indulgences, but give yourself a limited budget for treats.

Look over your credit card or debit card statements to see what you spend money on each month with an eye toward cutting the recurring bills for services you rarely use. Think: the gym membership that is going unused or the premium cable channels that are going unwatched. You might be able to get a reduction on monthly utility bills, such as cable, phone or Internet, by calling your providers and asking for a discount or switching to a lower-priced plan.

You can also find some creative ways to increase your income, says Sophia Bera, founder of Gen Y Planning, a Minneapolis financial planning firm. For example, she says, if you have a talent for social media, you might get work managing a company's Twitter feed. "People who can really hustle are the ones who'll be most successful," Bera says.

What not to do: Don't make the spending cuts so drastic that your life feels miserable, or else you might not stick with your newfound frugality.

Stay on Target

Set aside time each month to review your progress toward paying off your debts. Most importantly, be mindful of how you use your credit cards. Adding to your debt while you're working on paying it down can prolong the process. When you make a major purchase on a credit card, consider making an immediate payment in the same amount.

What not to do: Don't pay down your debts so quickly that you have insufficient savings for emergencies or special occasions. If you don't have enough money to handle common life events, such as repairing your car or attending a reunion, you're likely to end up borrowing it again to make up for the shortfall.

Finally, remind yourself that your debt repayment plan won't last forever and is an important part in achieving financial success.

Screen Reader Users: To load more articles, scroll down the page, or click the list of articles.