How can you exterminate debts without hampering your credit? - By: JasonHolmes

Problem:

I and my wife have decided to wipe out our credit card debts. We live in Milwaukee.

Our credit card debt amount is $55,000. We are planning to start the debt repayment process on our own. We have heard that canceling credit cards makes a negative impact on credit score. Is it correct? What is the right thing to do after paying off each card? Should we retain it or cancel it? We want to get rid of debt with hampering our credit score. Please advice.

Solution:

You and your wife have taken the right financial decision. Debts should be paid off as early as possible. It helps to increase credit score gradually. The popular scoring models such as FICO and Vantage score will calculate your total debt amount while computing your credit score. FICO uses around 30% of the debt amount while calculating the credit score. Vantage uses 23% of the owed amount when estimating the credit score.

It is best to clear your dues on your own. You won't have to depend on the performance of the debt relief companies for eradicating your debts. However, it is advisable to get help from the debt relief companies when you are unable to handle the creditors on your own. You can approach a debt consolidation Milwaukee company in such a situation.

Before getting back to your main query, I would like to suggest you some tips that can help you to not get into undesired debt problems in future. First of all, you should create an emergency fund. The fund should have enough money to cover your yearly expenses. You can't develop an emergency fund in one day. But with a proper spending and savings plan, you'll be able to build an emergency fund within a period of 6 months or so.

This emergency fund will be extremely helpful when you are short of funds and have to repair your car or air conditioner. You can use this cash to meet those expenses without depending upon your credit card.

Your decision to retain or close the credit cards will depend upon the length of your credit history. This is because the length of credit history computes around 15% of credit score. If any of your credit accounts is very old, then it is better to not close it. Closing your old credit accounts will shrink your credit history. This may in turn reduce your credit score.

You can close a credit card that does not have any balance. But even when you do it, you should send a letter to the credit card company beforehand. Mention in the letter that you don’t have any desire to use the credit card further. Check your credit report to find out if the account is reported as closed on your credit report.

Finally, if you decide to retain the credit cards, make sure you use them responsibly. Keep a close watch on the accounts after repaying them. This will assist you to spot the fraudulent activities.

About the Author

He is a contributory writer associated with the Debt Consolidation Care Community and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles.

Article Directory Source: http://www.articlerich.com/profile/JasonHolmes/54163

Additional Articles From - Home | Finance | Debt consolidation