How to Get Out of Debt and Boost Your Credit

Debt can be both good and bad, depending on how much debt you have and your proven ability to pay it back. Lately, banks and lenders get a bad rap, especially when it comes to personal loans, but this is generally because borrowers misuse these, spending the money on unnecessary items or services. But that doesn’t mean the personal loan is a bad thing. To the contrary, it can be very beneficial as it can often solve many situations, including that of getting out of debt and boosting your credit score.

Why You Need to Raise Your Credit Score

Even when you don’t have serious credit issues, but do have high balances on credit cards and other accounts, this can negatively affect your credit score. A poor credit score can lower your chances of getting a more important loan, such as a mortgage or car loan. Additionally the higher your credit score is the better loan terms you will get on those large loan needs such as the home mortgage.

Why Lowering your Debt will Raise Your Credit Score

Part of your credit score is based on your debt to income ratio; meaning your calculated ability to pay your debt off. So, the more debt you have, the higher a loan risk you are, and the lower your credit score will be. This is especially true if you keep large balances on your credit cards and only pay the minimum payment amount, or just slightly more than the minimum payment. By substantially lowering your credit card debt you decrease your debt to income ratio and are seen as a lower credit risk. This, in turn, increases your credit score.


How to Lower Your Debt

While paying off entire credit card balances is the best way to lower your debt, sometimes this just isn’t possible, especially when the balance is more than a few thousand dollars. The next best option is to transfer all your credit card debt to a 0% interest credit card. But, if you don’t already have one of these, getting one may be difficult if you are already carrying debt.

In this case, the solution is to consolidate your debt, and possibly, work with your creditors to lower the entire debt so you can pay it all off. But once you negotiate this consolidation, reduction of late fees, high interest rates and other fees, you’ll need to have the money to pay off the balance. This is when a personal loan can come in handily, as this type of loan can help pay off your credit card debt, leaving your credit card balances at zero. In turn this will raise your credit score, as in your creditors eyes you have no debt except for the one personal loan payment.

The Benefits

By reducing your debt you increase your credit score and can qualify for better mortgage, business, or car loan options. Having a high credit score gives you overall better credit leaving all of your loan options available for when you really need them.

About author: Peter Coppola is a personal finance and insurance expert. He mainly writes for personal finance and insurance blogs. Visit to learn more about short term finance options.

Vijayraj Reddy
Vijayraj Reddy is founder & editor-in-chief of, a financial blog which helps people to earn money, invest money and save money. You can find him on Facebook & Twitter or send him email at [email protected]

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