Advertising
Advertising

6 Mistakes You Do In Your 20s That Affect Your Credit Score

6 Mistakes You Do In Your 20s That Affect Your Credit Score

If you are wondering why your credit score is so low, you might want to take a look at your financial habits in your 20s. This is the time when many people make the biggest mistakes, which linger on for a long time. As you will see, most of the mistakes people make when they are young are due to lack of knowledge regarding the credit score. It’s important to inform yourself on what increases your score and what harms it, as soon as possible, so you can start building your score.

A couple of mistakes in your 20s, and you won’t be able to get a loan for a house later in life, so here are all the things that harm your score.

Advertising

1. Closing old cards

When you pay off your loan you will be tempted to close the credit line. Well, this is a huge mistake! Your credit score is being calculated based on the age of the credit lines and the debt-credit ratio. This means the older a credit line is, the better it is for your overall credit score.

If you want to increase your credit score, make sure you keep your credit cards open for as long as possible. This way, when you will apply for a loan, you will look more reliable, and the lenders will see that you are financially-wise.

Advertising

2. Helping friends

Probably the biggest mistake you can make is co-signing a loan. Many 20-somethings make this mistake, thinking they are helping their friends, but what are you doing? When you co-sign you accept to pay the loan if your friend won’t be able to pay it. When you think of it from this point, you’ll see it’s a bad idea from a financial point of view, friendship point of view and credit score point of view.

3. Maxing out the credits

Having multiple credit lines is good, but they have to be kept around 30% of your total credit limit. If you are maximizing your credit lines, your credit score will drop significantly. If you can’t stay below 30% of your maximum limit, you should call your oldest lender and ask for a limit increase.

Advertising

4. Not knowing what happens with your credit score

There are more and more hackers out there, and literally, anyone can become their victim. However, if you do check your credit score on a regular basis, you can spot unwanted activity on your accounts. Learn how to get a credit report on yourself and check it letter by letter – if you spot something suspicious, call the authorities. The number of people who don’t know how their credit score looks is overwhelming; don’t be one of them.

5. You apply for too many credit lines

Each time you apply for a new credit line you are lowering your credit score. This is because each time you apply for a new product, the lender is going to request a hard inquiry on your finances. Too many hard inquiries in less than one year are going to lower your score. To prevent this from happening carefully consider each new credit line and make sure you’re not applying for too many, too frequent.

Advertising

6. Delaying your payments

As you would expect, late payments are going to lower your credit score. Even if you are not penalized for this, your credit score will drop, so it’s a good idea to have reminders for your payments or automatize them.

As long as you know what are the things that harm your credit score, you are able to avoid them and work on increasing your score. Keeping an eye on your credit score also helps you stay safe from identity theft and fraud, which are now growing in frequency.

More by this author

20 Healthy And Tasty Vegan Breakfasts That Bring You Enough Protein 6 Things You Learn From Winter Camping The Ultimate Moving Guide For An Easy Move 6 Reasons You Should Date A Gamer (Girl or Boy) Proven Benefits Of Having A Beard All Men Need To Know About

Trending in Money

1 How To Pay Off Credit Card Debt Fast: 7 Powerful Tips 2 How To Make a Million Dollars in 7 Steps 3 7 Cheap but Powerful Products That Can Help Your Waste Less Food and Save Money 4 How To Retire Early (And What To Consider Before You Do) 5 How To Create a Budget (The Complete Beginners’ Guide)

Read Next

Advertising
Advertising
Advertising

Published on January 8, 2021

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

Ever wondered whether your credit card debt is the reason you’re in a bad financial situation? You can’t enjoy any fun activities because a good chunk of your money goes toward debt payment. Heck, you’re even behind on some of your monthly bills.

The effects of clumsy debt management are too many to list here. This guide is going to help you discover how to pay off credit card debt fast and start chasing your financial goals.

Debt problems are the last thing anyone wants to encounter. But things can get out of hand when all the “little debts” you take accumulate in interests.

What if you knew some simple and proven ways to be debt-free quickly? Implementing them would mean better financial health for you. It becomes possible to free up cash for your “wants.” These include taking a trip or buying something you’ve always desired. All that while paying your bills on time!

Let’s not wait any longer. Here are 7 powerful tips for paying off credit card debt fast:

1. Pay More Than the Minimum Credit Card Payments

Many people only pay the monthly minimum on their credit cards. Truly, that’s the right amount for staying on good terms with your credit card company. But you need a different approach if you’re looking to achieve financial independence within a short time.[1]

Most of your payments go toward interest costs when you only pay the minimum amount. A substantial sum of your balance remains standing. As a result, it becomes more expensive to eliminate your debts.

Advertising

You don’t want to wait more than 10 years to get rid of debt while it’s possible to do it sooner. All you have to do is double that $100 minimum payment to $200 or go higher.

The good thing is that minimum credit card payments are affordable in most cases. By paying a higher amount, you reduce your interest costs, lessen your borrowing period, and boost your credit score.

2. Start With High-Interest Credit Card Debt

If you have more than one credit card debt, prioritize putting the extra money toward the ones with the highest interests. This debt pay-off strategy, known as the debt avalanche method, is essential for being debt-free quickly.[2]

First, you need to list down all the credit card debts you have in the order of their interest rates. Next, you choose the one with the highest interest and pay a significant amount toward it each month. It can be an amount twice or even thrice larger than the minimum payment.

At the same time, you make monthly minimum payments on the other debts. Their interest charges won’t be as costly as that of the first debt on your list. You only move on to the next high-interest debt after the first one is gone. Remember that your focus is on the interest rates and not the balances.

3. Revisit Your Budget

Budgeting is useful for tracking your financial moves. Once you create a budget, some tweaks along the way can make it work for you better. One situation that requires you to revisit your budget is when you’re struggling with debts. It might hurt a bit to slash some expenses. But you also don’t want to miss out on achieving financial freedom in the long run.

You can reduce some variable expenses to free up more cash for credit card debt payments. They’re the ones that change from time to time. Some examples are groceries, fuel, and clothing.

Advertising

Other opportunities for cutting down your spending lie in non-essential expenses. Instead of dining out all the time, you can cook at home more to save money. You can also share some subscriptions with friends and pay a fraction of the cost.

If you’re determined enough, you can eliminate all your unnecessary expenses and focus on paying off your credit card debt first.

4. Avoid Using Your Credit Cards

Do you want to know how to pay off credit card debt with a low income? One simple way is to stop using them. Having your credit cards everywhere you go means that you’ll be more tempted to buy unnecessary stuff. In this case, you spend money that you don’t really own and get deeper into debt.

The quickest fix to stop the debt build-up is spending with cash. You’ll be more aware of everything you can afford at any particular time. If you decide to keep one or two cards to ease the transition, always make wise choices. For instance, only use them when experiencing financial difficulties.

It’s best to categorize your fun activities under “discretionary spending” in your budget. This way, you won’t need more debt to kill your boredom. By halting your credit debt from accumulating, it’s easy to pay down what you already owe and be happy with the progress.

5. Start a Side Hustle to Boost Your Income

You’re probably turning away a lot of money by not monetizing your skills. Everyone has something that they’re good at doing. And you can use that to generate extra income for attacking your credit card debt.

If you look around your neighborhood, you can find several side hustle opportunities. It can be pet sitting, tutoring, or lawn mowing. You can start an online business by offering services such as digital marketing, content creation, and web development. Such skills go in high demand on freelance sites and job boards.

Advertising

Finding clients on social media is also a good strategy to utilize your skills and make more money. Facebook groups, Quora Spaces, and subreddits are some places to look for side jobs. You only have to join a niche-specific platform, share your services, and respond to any opportunities.

It’s possible to learn a skill, practice it, and earn from it. Use the free resources online or purchase some e-courses to get started.

6. Sell Your Used Items for Extra Cash

Starting a side hustle isn’t the only way to generate extra money. You can turn unwanted items into cash for paying off credit card debt. Whether it’s an old TV, book, or furniture, there is always someone itching to buy your used stuff.

A garage sale, as much as it’s old-fashioned, is perfect for getting your neighbors and passers-by to buy from you. You keep all the money because there are no business permits or taxes involved. While you may not make much cash, it’s better than leaving your stuff to go defunct in your storage.

Other than that, you can sell your used stuff on online marketplaces. Facebook groups are great places to start if you want quick approvals and hence sales. You only have to ensure that your listing follows Facebook’s commerce policies.

When selling any pre-owned items online, ensure they’re in good shape to avoid problems with your buyers.

7. Know When to Seek Help With Your Debt

Asking for help with your credit card debt can be challenging to do. But letting it drown you is a road you don’t want to take. While you may feel embarrassed at first, it’s the best way to get back on track when you run out of options.

Advertising

There are tons of non-profit credit counseling organizations that can offer you free guidance on how to escape the debt trap. An example is The National Foundation for Credit Counseling. They simply review your finances and help you determine the source of your financial problems. After that, they match you with an actionable debt management solution.[3]

In extreme cases, the debt solution can be:

  • Debt relief – where your debt is partially or wholly forgiven
  • Debt consolidation – taking out one loan to repay others
  • Debt settlement – the creditor forgives a significant portion of your debt
  • Bankruptcy – legal process for seeking relief from some or all your debts

It’s necessary to carefully weigh your options before deciding on the way to go. Find out how it might affect your credit score and any other risks.

Wrapping It Up

Debt is a major setback when you’re trying to prosper in life. Paying off credit card debt is essential if you want to reach your financial goals. That means having more free income, a good credit card score, and even a chance to retire early. You become more productive each day because of the peace in your mind.

So, you now have some tips on how to pay off credit fast. Go ahead and get rid of that good life progress killer!

More Tips on How to Pay Off Debt

Featured photo credit: rupixen.com via unsplash.com

Reference

Read Next