The first step toward proper credit management involves taking an inventory of your current credit situation and analyzing how well you’re utilizing your credit in your everyday life. Are you paying too much interest on your mortgage? Could you qualify for a better deal based on your current credit score? Are you using your credit cards the best way possible to ensure you’re not overpaying interest and you’re not damaging your credit score? Are you maintaining a good reputation as a credit-using consumer by paying all of your bills on time?
Based on your credit score and information on your credit report, you may qualify for lower interest loans and credit cards than what you already have. Reducing the rate of interest you’re currently paying on your mortgage, car loan, home equity loan, and credit cards could save you hundreds or even thousands of dollars each month. Assuming your credit is average or above (and your credit score is at least 650 to 700), refinancing your current mortgage can be a quick way to cut expenses if you quality for a lower interest rate. In fact, based on what current rates are, you could save money immediately by paying a lower interest rate, plus change your 30-year fixed mortgage to a 15- or 20-year fixed rate mortgage. You could also potentially take cash from the equity in your home to pay off high-interest credit card debt to save additional money.
Obviously, what you want to avoid is relying too heavily on credit to sustain your current standard of living, especially by constantly increasing your credit card debt in order to stay afloat.
If you’re actively using high-interest credit cards and maintaining a significant balance on these cards, applying for credit cards with a lower interest rate and lower fees and then transferring your balances to those cards will also save you money each month. Shop around for the lowest interest bearing credit cards you can qualify for and then consider transferring your balances to them. (At the same time, develop a strategy to pay off or reduce your credit card debt, not just move it around.)
Some people realize a bit too late that their credit management skills are awful. In the process of realizing this, they rack up a significant amount of credit card debt, and have a series of other high-interest loans. When they finally get around to calculating how much of their monthly income they’re spending on paying down their debt and on interest charges, they realize that something needs to be done. In many cases, once you’ve acquired a significant level of debt that’s racking up high-interest charges each month, applying for a debt consolidation loan is a quick and relatively easy way to combine multiple high interest loans into one single lower interest loan. Doing this can help you reduce your monthly expenses and protect your credit score from dropping as a result of late payments or high credit card balances. To see if a debt consolidation loan (or refinancing your home and taking cash out to pay off debt) makes sense, utilize a free Debt Consolidation Loan Calculator.