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From overcoming debt to credit mastery

Falling into debt can feel like a major setback when it comes to achieving your financial goals. But remember, not all debt is bad. When you make regular payments on time towards financial agreements such as loans and credit cards, you can improve your credit score.

At the same time, accruing debt — such as credit card debt — and facing higher amounts of interest can make it harder to accomplish future goals. This can create a negative cycle, which may make matters worse. That’s why overcoming your debt is a helpful step towards improving your credit score over time.

In this article, we’ll discuss:

  • Ways of getting out of debt
  • What to avoid when getting out of debt
  • How getting out of debt impacts your credit
  • Mastering your credit

Ways of getting out of debt

You could be in debt for a variety of reasons — taking out student loans, using a loan to help buy your first car, or acquiring credit card debt. Whatever the type of debt you’re in, it can be helpful to prioritize and strategize to avoid the worst consequences. Let’s go into more detail below.

Loans

Whether it’s a car loan, mortgage or student loan, making your monthly payments on time is essential for overcoming debt and building up your credit score. Since your credit score heavily depends on your payment history, consistency is key.

If you’ve missed payments, try to get on top of any missed or late payments ASAP. You could hurt your score or worse, go into default or delinquency if you don’t make your payments.

Credit card debt

If you’re accruing interest on unpaid credit card bills, consider looking into a balance transfer, which can help offset some of the interest charges pay back your balance over time at a lower interest rate. Keep in mind that there may be fees associated with balance transfers that you will need to account for.

You should consider paying at least the minimum monthly payment to avoid late fees, derogatory remarks or higher annual percentage rates (APRs).

Put some payments on pause

If possible, freeze subscriptions such as streaming services or meal delivery kits to put that monthly amount towards your debt instead. This can help you to chip away at your debt without having to worry about making additional cash right away.

Work with your financial institution

If you’re struggling to make the payments on time, consider talking to your lender, financial institution or financial advisor about coming up with a budgeting plan to help pivot and meet your needs. Some lenders may assist with refinancing or adjusting the terms of the loan.

What to avoid when getting out of debt

Getting out of debt takes time and patience, and it may be a while before you see the benefits of your hard work. But remember that even though the road may seem long, every little bit can put you on the way to financial health.

While you’re getting out of debt, do your best to avoid accruing debt in other areas. For example, if you’re trying to pay off your credit card debt, don’t forget you still need enough funds left over to cover other bills like monthly payments towards loans, mortgages, etc.

You should also avoid taking out a bunch of new cards as a way to help cover the costs. Using additional cards to offset your costs and debt could further hurt your credit score.

To help keep you on track of your goals as you start to get out of debt, enroll in Chase Credit Journey®. This free online tool can be used by anyone and provides you with a regularly updated credit score, identity monitoring and a personalized action plan provided by Experian™ to help improve your credit score over time.

Coming out of debt and meeting your financial needs is a learning process. In a podcast episode of Credit Talk, BMX athlete Nigel Sylvester expresses that “At first, I was bad at managing it [credit health]. I learned the hard way...I wanted to buy these jeans or take this trip...I think it was a learning process for me.”

With time, patience and consistency, you can start to find your way out of debt and build a better financial future for yourself.

How getting out of debt impacts your credit

Making regular payments towards your debt builds up your payment history, which is a major factor that gets considered when calculating your credit score. The more consistent you are with making your payments on time, the better your chances are for improving your credit score.

Building healthy habits, such as making your payments on time, can lead to an improved credit score — unlocking future opportunities for access to more cards or loans with better rates.

As you start to work through your debts and become more creditworthy, you may start to notice an increase in your purchasing power, or ability to get approved for lower rates and higher credit limits. Having that power requires a level of responsibility and accountability.

Mastering your credit

Even if you have a great credit score, keeping it healthy and secure is a practice in itself. For example, just because you may have access to larger credit limits doesn’t mean you should use up all of it. This is because your credit utilization ratio is highly considered when calculating your credit score.

Over time, you may see how certain decisions impact your credit score, giving you more knowledge and insight about how to go about your finances. You don’t have to be a finance guru or a rewards points wizard to master your credit. Lean on tools like Credit Journey® to help give you the information and knowledge that empower you as you work toward your financial goals.

These small but important steps are essential to helping you master your credit over time.

In summary

Regardless of where you’re starting from, your financial journey doesn’t have to be as daunting as it might appear. With small, actionable steps, you can begin to overcome your debt and improve your credit score. Using tools like Credit Journey and building healthy habits can help clear the path for financial wellness and allow you to take control of your credit. To learn more about how you can master your credit, listen to this Credit Talk episode.