Your financial situation is severely impacted by debt. Credit card, student loan, auto loan, and mortgage payments drain your wallet of money that you’d probably rather save or reinvest. In addition, having a lot of debt can harm your credit score. It may be more difficult to pay off your debt with higher interest rates if you have a lower credit score, which makes it even more challenging.
Create a strategy for paying off your debt.
Create a plan for paying off your debt, especially if you have no idea how much you owe or how much interest you are paying. The hardest issue can be simply knowing where to start when you have a variety of debts. Fortunately, having access to tools that can help you is one of the benefits of being a Credit Sesame member.
How Credit Sesame’s dashboard functions
You receive a customized credit dashboard when you create a free Credit Sesame account. You can see important information about your financial situation on this dashboard, such as:
- Your credit rating.
- Your overall debt
- Your overall monthly payment
- Your ratio of debt to income (based on self-reported income)
- Your individual credit scores for credit queries, credit age, credit usage, and payment history
If you are a numbers nerd, you can delve a little deeper. You may specify how much of each form of debt is paid off each month, for instance. You may quickly determine how much money you have remaining after deducting your debt payments if you filled out your profile with information about your income.
Along with the sums of your debts, your profile also includes the minimum payments for each debt. In addition to comparing you to other customers on five main components of credit scoring, such as payment history, credit utilization, credit age, account mix, and credit inquiries, charts also indicate how your balances have trended over time and how they have changed over time.
Your TransUnion credit report serves as the basis for all the information in your dashboard. Your Social Security number is required when you create a free Credit Sesame account. Don’t worry, it’s not a hard inquiry and won’t lower your score. This is used to access your credit history and build your dashboard.
Your dashboard’s “Recommendations” tab is located at the top. You can get advice on what to do to perhaps get your financial condition better here. For instance, I only suggest rewards credit cards that are intended for those with excellent credit.
Making use of the dashboard
What should you do with the information now that you’ve seen what’s on your dashboard? It has two uses for enhancing your financial situation.
1. Commence with your debts.
Assume you are a typical Credit Sesame user. You owe $4,305 on your credit cards, which have a $12,977 maximum credit line. That puts your credit utilization ratio at 33%, which is significantly higher than the ratio of 10% or less that is advised if you want to join the exclusive club of people with high credit scores.
You owe $20,126 on a car loan, $38,064 in student loans, and $201,734 on your mortgage, in addition to your credit card debt. Your salary is in line with the median household income for the country, which was $55,775 in 2015, according to the latest available statistics from the U.S. Census Bureau.
Your Credit Sesame dashboard shows the following breakdown of your monthly payments:
- Using credit cards, $86
- Loans for students: $403
- Auto loan: $363
- Home loan: $987
- Total amount paid each month: $1,839
Your monthly take-home pay, based on a median income of $55,775, is around $4,648. You have $2,809 left over after deducting your loan payments, which you may use to pay the balance of your bills and speed up debt repayment.
Let’s suppose you need $1,800 of that to pay for transportation, utilities, insurance, and the occasional non-essential purchase. You now have $1,000 to use toward paying off your debt. But with which loan should you begin? Credit Sesame can be useful here.
Select the credit card you want to pay off first.
Select My Finances from the dashboard’s top menu, and then select one of the tabs to view all of your debts. You can enter the yearly percentage rate for each debt on the list (APR). Pick the debt with the highest APR, which is likely to be a credit card, to pay off first. This is an easy approach to make this decision. If your credit card debt is comparable to the $4,305 average indicated earlier, paying the minimum amount plus the extra $1,000 from your budget would allow you to pay it off in four to five months.
Continue with the following bill on the list after paying off the credit card. You might pick that one if your auto loan has a higher APR than your next option. If your school loan and your auto loan have about equal interest rates, on the other hand, you might base your choice on which debt you’d prefer to have paid off the quickest or which debt is smaller and can be paid off more quickly.
Since mortgage debt typically has lower interest rates than other types of debt, it is normally advisable to pay it off last. However, if your mortgage doesn’t have a low APR, check your Recommendations page to see whether Credit Sesame can direct you to refinance deals that will save you money. You can save money and pay off debt more quickly with a reduced interest rate on your mortgage.
2. Check how your credit stands.
Let’s now take a closer look at your credit grades, which are ranked according to how much of an impact they have on your credit score. Here’s another illustration:
- Payment background – C
- Use of credits – C
- Account mix – A Credit age – A
- Credit checks – B
- If your grades reflect this, you are falling short in the two crucial aspects of your credit: payment history and credit utilization.
Establishing a steady payment history is the first step in raising your payment history grade. Late payments and collections significantly lower your score. Beginning right now, pay on time, every time. Create automatic payments or mark the due dates on a calendar.
There are three techniques to minimize credit use. The first step is to reduce your debt obligations. The second is to request a credit limit increase from your creditors.
Applying for a new credit card is the third choice, per Credit Sesame’s advice. Your available credit increases when you start a new credit account. Revolving debt balances divided by total credit available equals your utilization; therefore, more credit equals a higher percentage. Just be careful not to overcharge the new card as you pay off your outstanding obligations.
A warning, please. An inquiry appears on your credit record each time you apply for credit and the lender examines your credit report. While queries have less of an impact on your score than payment history or credit utilization, having too many at once might be detrimental. Read through the Credit Sesame suggestions before opening a new account. That can assist you in identifying the card for which you have the best chance of being accepted, helping you avoid making a lot of fruitless enquiries.
Plan with room for modifications.
Although Credit Sesame can help you improve your credit and debt, it’s vital to keep in mind that your strategy could need to vary over time. Your timeline can be upset if, for instance, your income increases or if you have to borrow money from a friend or family member or use all the credit on your card to pay for an unexpected expense. If you find yourself temporarily diverted from your route, adjust and modify your plan as necessary to get back on track.