The First Thing You Need to do Before Settling Your Credit

You’ve just made up your mind: It’s finally time to pay your debt off. You have looked into the best ways to pay off debt, and perhaps you’ve even weighed the pros and cons of each to help you settle the debt faster. Perhaps you’ve also thought about seeking the assistance ofa creditcounseling or a debt settlement agency, or maybe even a bankruptcy attorney, just to see what they can offer.

But before you decide on your plan of action, though, there is one very crucial step you should not miss. This step can make or break your effort to pay off debt: Knowing your credit standing, through credit reports. In this article we will discuss why this is an important first step to be taken if you are serious about getting rid of debt.

Reason #1: Knowing your credit standing gives you a starting point.

Any debt counsellor will inform you that those struggling with debt usually underestimate how much they really owe. If  this sounds like you, there is no need to feel bad. You’ve most likely just been focused on ensuring you can meet the monthly deadlines. But when it comes to actually paying off debt, then you will need to get a list all the debts you owe, and who you owe them from. Your credit record provides this information, as well as your current outstanding balances.

Furthermore, you may also find debts that you’ve already forgotten about. It could be penalties, collection accounts, and other small purchases that are rather minor, but nonetheless need to be settled. If you end up only paying for the debts you recall, these ‘small’ and ‘minor’ amounts could end up causing you more trouble than the others.

Reason #2: Knowing your credit standing will help you understand how your debt affects your credit.

If you have been the type to meet the monthly minimum, you may think that you have a good credit standing. However, meeting deadlines alone will not give you a good rating if your credit utilization is high. Even if you are meeting the minimum payments, and yet have a staggering total left to pay, then this is hurting your credit score – and you won’t actually know this unless you look at the report.

Your credit score, which is also seen in the report, will show the impact of each debt on your overall standing. Knowing where you currently stand will be of great benefit as you pay off your debt as this gives you the awareness of how your spending habits have hurt your score.

Reason #3: Knowing your credit standing can help you track your progress.

Debt payment is usually a long term program – it’s a marathon, not a sprint.As such, many of us would want to have positive reinforcement  and encouragement to keep going. By keeping tabs on the credit score, seeing it improve with every payment you make gives a sense of accomplishment that is enough fuel to keep on making the payments. Furthermore, seeing the overall balance decrease gives a feeling of financial freedom and independence. Seeing your credit score improve is motivation and inspiration enough for those who have been struggling to commit to their plans because they don’t see any improvements.