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Families are increasingly relying on credit cards to keep up with the high cost of living. In the final months of 2022, credit card balances went up by $61 billion — the largest quarterly increase since the U.S. Federal Reserve started collecting data in 1999.
Want to get control of your debt?
Don’t put your head in the sand, make only minimum payments and assume that that's enough, Sara Rathner at Nerdwallet says.
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Do find a strategy that works for you.
Here are three popular debt repayment strategies to consider:
Motivated by crossing things off your to-do list? Try the snowball method. Make minimum payments on all accounts to keep them in good standing. Put any extra dollars toward your smallest debt balance. Once that’s knocked out, move onto the next smallest debt.
Eager to save money on interest over time? The avalanche method prioritizes paying off debts with the highest interest rates. This method can save you the most money, but it can take a long time to feel like you’ve achieved your goal.
Want to capitalize on good credit? Consider debt consolidation, when you combine all your debts into one loan. Consolidation loans often have lower interest rates than credit cards — if you have good credit. Used correctly, this method can help you pay off debts faster. But stay away if your credit score is too low to get you a competitive interest rate.
Credit Repair Companies: Are They Worth It?
Although there are reputable companies out there, you can spend an hour or two doing it yourself — for free.
Here’s how, according to Rathner:
- Download your Equifax, Experian and TransUnion credit reports from annualcreditreport.com — it’s free through the end of 2023.
- Review each credit report for problems, such as accounts you don’t remember opening and inaccurate information. Make sure any public records information, such as evictions or judgments, is accurate.
- If you find inaccurate information, dispute it by contacting all three credit reporting companies. Send a letter explaining each error. Include supporting documentation. The credit reporting company generally has 30 calendar days to investigate your dispute.
No credit repair company can remove negative information— such as bankruptcy or a late payment — from your credit report if it’s accurate. However, most negative information can only show up on reports for about seven years (10 for bankruptcies), according to the Consumer Finance Protection Bureau. Contact the credit bureaus to have outdated information removed — it may boost your credit score overnight.
So, when is it appropriate to use a credit repair company? It could be worthwhile if the prospect of contacting credit agencies is overwhelming.
Just look out for red flags. Don’t hire a company that asks you to dispute accurate information, promises to remove valid negative information or requests upfront fees.