Debt is a reality that everyone faces at some point or another. Getting out of debt can be difficult. Using your credit score is one way to climb out of debt without negatively impacting your credit. This guide explains why credit scores are a way to get out of debt, how to actually do it, and ways to manage it.
Good Credit and What Impacts a Credit Score
Having a good credit score can get you into and out of debt. What is a good credit score? For the purposes, this article, good is considered 700 or above. But you can still get out of debt if your score is at least 600 or better. Having a good or relatively good credit score depends on [these factors:](http://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/)
- The amount of debt you have
- Your credit utilization rate
- The number of new accounts opened
- Payment history including frequency of and severity of late payments
- The number of accounts you have, their type, and age and others.
The first option for paying off debt is to do one or more balance transfers. Doing a balance transfer generally requires having a credit score of 700 or above because it involves opening up a new credit card account. The balance from the old card is transferred to the new one at a 0% or very low-interest rate typically. Getting out of debt this way does involve planning though. Before doing a balance transfer, consider these questions:
- What is the amount of the debt?
- How much are the interest fees for the current card(s)?
- How long would take to pay off the debt as is and on a new card?
- Determine a monthly payment to pay off the debt. Can you afford it?
Transferring balances is ideal for someone who has good credit and has a high-interest credit card or two. Interest can pile up and slow the pay-back process. But doing so does require discipline. If a balance transfer is a right option, be sure to note when no or lower interest rate promotions expire in a pay-back plan.
Personal Loans for Debt Consolidation
Getting a loan for debt consolidation purposes is an option for someone who has a fairly good credit score that is below 700. If there are multiple high-interest credit card accounts, a [debt consolidation loan](https://www.debt.org/consolidation/loans/)is a good option. The interest rate should be lower than those on the credit cards. Typically, the loan money will be used to pay off each account included in the loan’s balance and the amount paid each month would be just the loan payment. Prior to getting a debt consolidation loan, consider:
- How much total debt is being consolidated?
- What are the individual monthly payments?
- How much is the monthly loan payment and can you budget to pay more than the minimum?
- Will you continue to spend on the credit cards after consolidation?
Like with balance transfers, it is a good idea to make a budget and make the loan a priority in getting it paid off. There are many options out there for loans so be sure to do the research and understand the repayment terms before committing to anything.
Balance transfers and personal loans are subject to approval. If neither option will work for reducing debt, consider talking to a credit counseling or debt management program as a way of getting out of debt.