Experian, TransUnion and Equifax now offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com.
Welcome to the first step in your action plan!
The hardest part is already behind you: Committing to pay down your debt can be the biggest obstacle of all, but it's also the most important. Now that you're ready to improve your financial life, it's all about staying motivated and doing what it takes to free yourself from debt.
In this action plan, we'll share three steps for lowering debt. Together, they might seem overwhelming, but we'll guide you through each step and offer concrete suggestions and resources to help you get to the finish line. Let's get started with the first step: assessing what you owe.
List your debts
Before you can start attacking your debt, you'll need to figure out how much, and what types, of debt you're dealing with. Factors such as the interest rates you're paying will determine which debt-busting methods you'll use.
Gather up your account statements, or log in to the online portal for each creditor you're working with. The first thing you need to know is the kinds of debt you're currently paying off. These are divided into installment credit accounts and revolving credit accounts.
Installment credit accounts are loans for a set amount with fixed payments.
Revolving credit accounts are accounts with a limit up to which you can borrow and without fixed payment amounts.
For each type of account, you're going to need the following information:
Once you have all your account information in one place, grab a piece of paper—or fire up a spreadsheet—and write down the following. You can also use this downloadable Debt Tracker worksheet to help you stay organized.
Debt tracker worksheet
| Type of debt | Lender or creditor | Outstanding balance | Interest rate | Minimum payment | Due date | |
|---|---|---|---|---|---|---|
| Add a row | ||||||
View your credit report
The next step is to log in to view your credit report to make sure the information there matches your own records.
Why is this important? Your credit score is calculated using the information on your credit report. Your score will dictate whether you qualify for certain repayment options, such as a balance transfer credit card or debt consolidation loan, and the interest rates you'll get. (We'll explain how to choose the payoff methods in Step 3 of this action plan.)
Check your credit report for errors in the following:
Credit report checklist
Your name and address
Are they current and spelled correctly?
Account status
Did you close any accounts that are still listed as open? Are there late or missed payments on your report that you mtade on time?
Accounts in your name
Do you see any accounts you didn't open, or that belong to someone with a similar name to yours?
Number of accounts
Are there duplicate accounts listed?
Account balance and credit limit
Do these match your statements? Note that it may take time for your credit report to reflect payments you make to lenders and credit card issuers. That means that depending on when you view your credit report, the balances on it may not perfectly line up with your statements.
If you find errors, you can dispute them directly with each credit bureau and request they be corrected. To initiate a dispute with Experian, go to the Experian Dispute Center. The bureau will investigate the dispute, generally within 30 days. Also tell the creditor—the lender or credit card company you opened the account with—that you're disputing an item in your credit report.
Take these important actions to protect your credit score—and to get it in the best shape possible to begin paying off debt. Having a loan on your report that you didn't open, for instance, means adding debt to your file that you don't own. An incorrectly listed missed payment could also bring down your score. Submit any disputes as soon as possible so you don't have to wait to take charge of your debt.
Check your credit report not only from Experian, but also from TransUnion and Equifax. Through April 20, 2021, all U.S. consumers can get free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.
Choose which debts to focus on
Lowering your debt doesn't have to mean eliminating every line of credit you have.
Some types of debt—like payday loans, credit cards, high-interest personal loans and private student loans—are worth focusing on because they often come with fees and high interest rates. On the other hand, mortgages and federal student loans typically carry lower rates. Also, usually it takes decades to pay off a mortgage, so instead, concentrate on those debts you can feasibly pay off sooner. Once you pay down your other existing debt, you can consider refinancing your mortgage to shorten that debt as well.
If you have credit cards or payday loans that are accruing interest or that you're behind on, attack them first. Within those buckets, choose the card or loan with the highest interest rate, and devote your attention to paying that off initially. You can then apply the money you've been allocating to that account to the one with the next highest interest rate.
Now what?
Understanding and tracking your debt is the first step to getting out of debt. Learning how to find room in your budget or add to your income in order to send more money to your debt is what we'll cover in Step 2.
If you need help keeping your debt organized, don't forget to use the Debt Tracker worksheet and Credit Report checklist.