Are you tired of carrying your debt around? Then, you need to take the initiative to start paying it down. You can’t keep maintaining it—you need to get rid of it.
If you’re looking for more motivation to get this done, you should read these benefits that come with paying down debt.
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Emergency Preparedness:
Your credit accounts can be really useful in emergencies. For instance, if an urgent expense drops into your lap, and you don’t have enough savings to pay for that expense out of pocket, you could use your credit card as a backup plan. Charging the expense to your credit card allows you to resolve the emergency quickly, and it gives you some extra time to come up with the funds for repayment. Ideally, you can pay down the card’s balance before the grace period ends and interest starts accumulating. If not, you can steadily pay down the balance through the monthly billing cycle.
If you don’t want to use a credit card, you could use a personal line of credit. With a personal line of credit, you can request a withdrawal within the confines of your credit limit. If that request is approved, you can use it to manage your emergency expense as soon as possible. Afterward, you can follow a straightforward repayment plan through a monthly billing cycle.
These credit tools can help you get out of some tough spots — that is, when they have enough credit available in them. If the accounts have high balances and barely any available credit left, they won’t be very reliable when disaster strikes.
Better Credit Score:
Paying down your outstanding debts can have a positive impact on the score sitting on your consumer credit report. Your credit score will influence your ability to apply for loans in the future, like mortgage loans and auto loans. It can also affect your ability to rent an apartment, set up utilities or get a job in the financial sector.
How does paying down debt affect your credit score? Your credit score is intricately tied to various elements: your historical credit behavior, payment track record, types of credit in use, and recently obtained recognition. Credit utilization is an essential factor that weighs into your credit score when handling credit card debt. The latter refers to the proportion of your available credit that you’re presently using, thereby directly influencing your current outstanding balance and potentially your creditworthiness in the eyes of lenders.
If the balances sitting on your credit cards and lines of credit are very high, then your credit utilization ratio will be high, too. And a high credit utilization ratio can negatively impact your score. A high ratio tells credit bureaus and various creditors that you are more at risk of maxing out accounts, paying bills late and defaulting on loans.
You can fix this by paying down your revolving credit accounts! The lower the balances are on them, the lower your credit utilization ratio will be.
Fewer Payments
You’re juggling a lot of different repayment plans. It seems like your schedule is jam-packed with different due dates for bills that you have to remember. You can declutter your schedule by aggressively tackling some of these repayment plans. By paying down those outstanding debts, you can give yourself fewer bills to think about.
How can you do this? First, stop paying the “minimum” amount if you can. The minimum usually doesn’t whittle down your debt load by much and barely keeps up with interest. You can also check whether you can make an extra payment to bring your total down faster. The loan provider might accept this increase in your payment size or frequency.
Stress Relief:
You might not even realize how much stress your debt is causing you. Do you think about your debt every single day? Does the thought of your payments keep you up at night? Are you having trouble concentrating on other important things, like your job or schoolwork? This is called financial anxiety, and it can have a significant impact on your mental health.
Paying down your debt will bring lots of positive things into your life. You could have a higher credit score, a clearer schedule and a better chance at handling emergencies. And, at the very least, you’ll have a lot less stress whenever you open up your banking app.
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