Over the past decade, car debt has gone up 60%, and the average car payment is now $545! 1, 2 Paying off your car might not be the first thing that comes to mind when you look at your budget, but if you have a car payment, it’s really stealing from your income. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.If you’re living paycheck to paycheck and feel like as soon as money comes in, it goes right back out, it’s time to ask yourself: Which payments can I get rid of first?įor starters, you might want to look in your driveway! ![]() Readers should consult their own attorneys or other tax advisors regarding any financial strategies mentioned in this article. Santander Bank does not make any claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in this article. Santander Bank does not provide financial, tax or legal advice and the information contained in this article does not constitute tax, legal or financial advice. This article was written by Tim Lemke and from Kiplinger and was licensed from NewsCred, Inc. Prioritize the most recent past-due bills first. This may not ultimately boost your credit score significantly right away, according to FICO, but new lenders will still want to see that you paid back what was owed. If you have debts that are very late, it’s best to still pay back what you owe. So if you have debt on more than one card - even if it’s a small amount - it’s best to get those card balances down to zero. One of the things that FICO looks at when evaluating credit is how many credit cards have balances. But if those small debts are on multiple credit cards, your score may be suffering. You may think your credit score should be fine if you have only small debts. Credit bureaus like to see both types in your file. Student loans are considered installment loans, because you pay a fixed amount each month, while credit cards are a vehicle for revolving debt. But it’s worth noting a debt payoff in this case could result in a change to your debt mix, thus impacting your score negatively. The fact that you have a long history of making your loan payments on time will continue to help your score, even after the debt is paid. ![]() And because student debt is not dischargeable in bankruptcy, your wages could be garnished if you don’t pay up. Paying off your student loans is usually a good thing, because you’re reducing your debt-to-income ratio. You will continue to see improvement until your credit utilization is down to 10% or less. So even if you can’t get your balance down to zero, work to make sure you’re borrowing less than a third of what you are allowed. Generally speaking, if you are using more than 30% of your available credit, that’s a problem. Even if you pay credit cards on time, your credit score can be negatively impacted if you have high revolving balance. Just because credit card companies let you borrow up to a certain amount doesn’t mean you should always charge up to the limit. Anything That Gets Your Credit Utilization Under 30% This way, if you choose to close the credit card, your debt load is reduced but your limit doesn’t shrink as much. But if you’re close to maxing out a credit card with a low limit, pay that one off first. If your debt is low relative to what you are allowed to borrow, that’s good. Credit Cards With the Lowest Credit LimitsĬredit card bureaus will not only analyze your total debt, but the amount of debt relative to your total limit. By paying these cards off first, you are reducing your debt risk and ultimately will see your score rise. Debt With the Highest Interest RatesĬards with the highest interest rates are the ones that place you at the most risk of racking up more debt, thus hurting your credit score. In fact, these types of payments are viewed more positively by credit bureaus than any other factor. ![]() ![]() If you make your monthly mortgage payment every month without delay, that’s huge. If you can pay off your credit card balance in full each month, that helps. Nothing helps your credit score more than your ability to make payments on time. So how can you give your credit score a boost? Here are the kinds of payoffs that will be helpful. In fact, credit bureaus like to see people who have some revolving debt but are still capable of paying their bills. But it helps to have a plan, as not all debt payoffs will help you. If you have a FICO credit score that is too low, there are some ways to improve your score by tackling your debts head on.
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