5 ways to strategically build credit and pay down debt fast
Could 2023 be your year to pay down debt and find more freedom in your finances? Debt can be overwhelming and the idea of paying it down can be daunting, but getting debt under control will strengthen your financial security, reduce stress and boost your quality of life. Knowing where to start can be confusing and it is also important to make use of the benefits you already have with your Navy Federal Credit Union Membership and card offerings.
Here are 5 ideas that can help you reach your goals faster and help boost your credit score on the way:
1. Pay Early: If you’ve already set up automatic payments on your credit card, student loans and rent or mortgage, then you’re ahead of the power curve. If you haven’t, make this your first step because it’s fast and easy. But don’t make the automatic payment for the day your payment is due. Instead, set it up for a few days ahead of time. If you miss a payment, you will still have a buffer to make the payment before it counts against your credit score. Your future self (and credit score) will thank you for planning ahead.
2. Pay More: Paying just the minimum payment will keep you in debt and add to the amount of interest you will pay over your lifetime. Even if you pay $25 to $40 more a month, it could take years off your debt timeline (not to mention potentially thousands of dollars in interest).
If you have already looked at your budget and cut back where you can, review what you can do to make more money. Whether it is a side hustle or selling items on Facebook Marketplace, try your best to put extra money towards debt on a regular basis. It could be a new and positive habit. Paying more can also help your credit score. When you pay off your debts faster, it lowers your credit utilization, which can impact up to 30% of your credit score.
3. Pay with a Plan: Henry Ford said it best when he said, “If you fail to plan then you plan to fail.” And he seemed to do alright with his financial plan! Go into your debt payment with an intentional course of action. Decide the intensity in which you are going to pay down your debt and crunch the numbers to determine where you can cut back on line items in your budget.
It is also important to remind yourself why you want your debt gone. Is it perhaps to save up for a wedding, save for a house or save for your kids’ college? Write down your why on a piece of paper and put it somewhere you will see daily as a constant reminder.
4. Debt Snowball vs. Debt Avalanche: You may have heard of the debt snowball or the debt avalanche. These methods are similar. Both approaches start by paying off one card or balance at a time, then once you’ve paid off that first card, you use that additional amount towards the next balance and so on. For instance, if you are paying $200 per month on your smallest balance, pay it off completely, then you will have that $200 payment to add towards your next balance.
The difference is the snowball method starts with a list of your debts according to the balance, whereas the debt avalanche lists it according to the interest rates. The snowball method could be effective when it comes to building momentum and it gives your brain a happy boost of serotonin when paying off a card. The avalanche method may save a little more money over the course of time because you can get ahead of higher interest rates that make a difference.
5. Consider a Balance Transfer: If your APR is crushing your ability to pay more toward your principal, a balance transfer could be a good solution to save money and pay off your debt more quickly. A balance transfer is when you roll over the balance on one card to a card with a lower interest rate.
This transfer usually comes with a fee, but the cards at Navy Federal Credit Union do not. This will save you the usual 3-5% transfer fee that traditional bank cards charge. Also, when it comes to the lower interest option, not all cards are created equal. Do your research to find the best card for you and your situation.
Military members and their families have the unique benefit of being able to sign up for credit unions like Navy Federal Credit Union. The cards offered by credit unions are often lower in interest and fees than traditional bank cards.
Your greatest superpower is your ability to choose and if you choose to get serious about building your credit score and paying down debt, then you’ll be able to reach your goals and feel better in the process. Just remember, you’ve got this! Navy Federal Credit Union is here to help their members.
Image used for representational purposes only; does not imply government endorsement.