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3 ways to settle your debt without hurting your credit score
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Recent data shows that credit card balances (and delinquencies) have been rising steadily for the last three years. And, the reasons are simple: With high inflation and soaring rates on loans and mortgages, many consumers are turning to credit cards in a financial pinch. They’re easy to qualify for and incredibly convenient to use.
Unfortunately, they can also hurt your credit — especially if you skip payments or wrack up too-high balances.
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3 ways to settle your debt without hurting your credit score
Are you dealing with high credit card debt? Here’s how to tackle it without hurting your credit further.
Choose a debt payoff method and stick to it
To start, make sure you’re making payments that are larger than the minimum payments required by your card issuer. This reduces your principal balance and, in turn, your interest costs.
Create a household budget and see where you can cut corners. Then, put any extra cash you’ve found through those cutbacks to reduce your debts. Generally, financial professionals recommend putting at least 20% of your disposable income toward debts and savings each month.
If you have several credit cards with balances, “use either the debt snowball method — paying off the smallest debt first, or the debt avalanche method — paying off the highest-interest debt first, to systematically reduce your debt,” says Kristy Kim, founder and CEO of TomoCredit.
The quicker you can get your balances to 30% or less of your total credit line, the better. According to credit bureau Experian, that’s when your balances start to have a “pronounced negative effect” on your credit score.
Explore how the right debt relief company can help you tackle your high-rate debt now.
Consolidate your debt
Another option is to consolidate your debts — using another credit card or loan to pay them all off at once. This rolls them all into one loan and, as long as the new credit card or loan has a lower interest rate, can save you on long-term interest, too.
Opening the new card or loan will result in an initial hit to your credit score, but Howard Dvorkin, a certified public accountant and chairman of Debt.com, calls it “a classic case of taking a half-step backward to take two steps forward.”
“Yes, in the very short term your credit score may drop, but if you make payments on time and in full, your score will soon rise,” Dvorkin says.
The key is to make sure you’re paying the credit cards off with a lower-rate product. This might mean a personal loan or home equity loan (both tend to have lower rates than credit cards these days), or it could mean using a balance transfer card. In the case of the latter, these often come with promotional 0% interest rates for a period of time. You’ll just need to make sure you pay off the balance or transfer it to a new card before that promo rate expires.
Additionally: Make sure you keep your old credit cards open once you pay them off — just don’t use them.
“The average age of your open accounts is a factor in determining your score, so while closing a card may be tempting after consolidating your debt, it might be better to keep it open, especially if there is no annual fee,” says Gabe Kahn, director of credit at Arro Finance. “If you’re concerned that you’ll use the newly available credit to continue spending, though, closing the card and taking a minor hit to your credit might be a good idea instead of ending up in debt again.”
Get on a debt management plan
A debt management plan is also an option. These are available through credit counseling agencies and debt relief companies, and often result in reduced interest rates and waived late fees.
You’ll pay your credit counseling company monthly, and they’ll work with your creditors to pay off your balances by a certain deadline (often within three to five years).
Dvorkin says these plans are similar to consolidation when it comes to your credit score.
“Your score might dip momentarily, but it comes back stronger than ever,” Dvorkin says. “In both these cases, you’re making on-time payments that lower your debt burden.”
The bottom line
Whatever you do, stay on top of your payments. And if you think you may have trouble making them, call your credit card issuer for options.
“The worst debt strategy for your credit score is to consistently make late payments or miss payments entirely,” Kim says. “Payment history is the most significant factor in determining your credit score.”
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LeBron James re-signs with Lakers to make him and Bronny first father-son duo on same NBA team. But they aren’t the only family members to play together.
LeBron James and his son, Bronny, are making history as the first father-son duo to not only play in the NBA simultaneously but also on the same team. The elder James re-signed with the Los Angeles Lakers on Saturday, CBS Sports reports. This comes after the younger James was drafted to the team as the 2nd round, 55th overall pick.
LeBron, who made his NBA debut in 2003 at age 19, has played on the Lakers since 2018 after two long stints with his hometown Cleveland Cavaliers and a stint on the Miami Heat in between. The four-time NBA champion and four-time NBA MVP reportedly re-signed with the Lakers for about $101.35 million, ESPN’s Bobby Marks first reported. This is a pay cut considering his max salary is around $104 million.
Bronny, 19, was drafted by the Lakers last month after playing one season at the University of Southern California.
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Ahead of the draft, LeBron, 39, said he was hoping to play alongside his son.
“I need to be on the floor with my boy, I got to be on the floor with Bronny,” he said.
The pair may be the first of their kind, but several other family members have played in the NBA together, even on the same team. Here are some of the other famous duos of the league.
NBA father-son duos
Dell Curry, father of Golden State Warriors star Steph Curry and Charlotte Hornets member Seth Curry, played in the NBA from 1986 to 2002. His oldest son, Steph entered the league in 2009, just seven years after his father’s retirement.
Athletics runs deep in that family. Seth married Callie Rivers, the daughter of his former head coach, Doc Rivers. Callie is a professional volleyball player.
Doc’s son, Austin Rivers, also played in the NBA, making them another father-son duo of the league. Austin became the first person in the NBA to be coached by his father, who was coaching the Los Angeles Clippers.
Several other NBA players have seen their sons enter the league: Mychal Thompson’s sons, Klay and Mychal, played, as did Rick Barry’s three sons Jon, Brent and Drew.
Some other duos include Arvydas and Domantas Sabonis, Bill and Luke Walton, Tim Hardaway and Tim Jr., Larry Nance and Larry Jr. and Gary Payton and Gary II.
Late Lakers great Kobe Bryant’s father, Joe “Jellybean” Bryant, also played in the NBA for several years.
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NBA brothers
In 2024, there are fourteen sets of brothers playing in the NBA, including the Currys and Giannis and Thanasis Antetokounmpo, who play on the Milwaukee Bucks together.
The Bucks roster includes another set of brothers, twins Brook and Robin Lopez. Evan and Isaiah Mobley play together on the Cavaliers and Franz and Moritz Wagner play on the Orlando Magic.
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Justin, Jrue and Aaron Holiday all play in the league – Justin and Aaron played together on the Atlanta Hawks and Indiana Pacers during their careers.
There are also several sets of twins in the NBA: Caleb and Cody Martin, who both played on the Charlotte Hornets at the same time; Amen and Ausar Thompson, who were both drafted in 2023; and Keegan and Kris Murray and Marcus Morris Sr. and Markieff Morris, who were both drafted in 2011.
Other brothers currently in the league include Tre and Tyus Jones, Jalen and Jaden McDaniels, LaMelo and Lonzo Ball and Jaden and Cody Williams.
There have been more than 70 sets of brothers who have played in the NBA over the years, according to FanSided.
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Inflation has been cooling in recent months, and if it continues on that path, it could mean lower interest rates are upcoming. Once inflation gets closer to the Federal Reserve’s 2% goal, it’s likely to reduce its federal funds rate, which would lower rates for American borrowers, too.
The timing of that rate cut is unclear, but according to the CME Group Fed Watch tool, it could be as early as September. What would that rate mean for home equity borrowers, though? And when would those changes hit? We asked some experts for their thoughts on how a Fed rate cut could affect home equity loans.
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How a 2024 Fed rate cut will affect home equity loans
Here’s what the experts we spoke to predicted for home equity loans, should the Federal Reserve proceed with a cut to the federal funds rate.
The Fed will only cut rates slightly
In its June Summary of Economic Projections, the Fed indicated it will likely only reduce rates by about 0.25% this year. And the experts we spoke to agree that this is probably where the Fed will land by year’s end.
“The Federal Reserve has made it clear that it needs to see more data supporting an inflation trend towards its long-term goal of 2% before making any meaningful changes to monetary policy,” says Kelly Miskunas, senior director of capital markets at online mortgage lender Better.com.
The CME Group Fed Watch tool shows the possibility of further rate cuts this year, but the numbers change often. If inflation drops at a faster clip than it has in recent months, there’s a chance those extra cuts could happen. The Fed meets next at the end of July.
See how much home equity you could access online today.
Home equity interest rates will drop, too
Experts say if the Fed drops its rate, home equity rates will fall, too. They’ll fall quickest on home equity lines of credit (HELOCs), as these have variable interest rates that are directly tied to the prime rate. When the Fed rate declines, the prime rate does, too, so HELOC rates fall in step.
That means new HELOC will see the impact immediately, and borrowers who already have HELOCs will see it shortly after.
“Outstanding HELOCS typically are set monthly,” says Kevin Leibowitz, a mortgage broker at Grayton Mortgage in New York. “It will take 30 to 45 days for those mortgages to reset.”
For home equity loans, though, the story is a little different. Most borrowers with existing home equity loans won’t see their rate change at all (those are usually fixed-rate loans, so the rate stays constant the entire term unless refinanced). New home equity loan borrowers, though, will see lower rates when they take out their loans. It likely won’t be a huge decline, though.
“The Federal Reserve tries to be overly transparent with their intentions for future policy decisions to not spook broader markets,” Miskunas says. “For this reason, the market will typically have priced in the Fed’s next action before it occurs.”
Should you act now or wait?
With rates poised to fall, you might be tempted to wait before taking out a home equity loan or HELOC. Whether that’s smart or not depends on your goals (do you need the money for something important right now?), as well as what type of product you’re considering.
“Waiting for a lower rate for most HELOCs is not necessary because they are floating, so when the rates drop, your loan rate will automatically fall,” says Mason Whitehead, branch manager at Churchill Mortgage in Dallas. “Just ensure that your loan does not have a floor rate, which means it will never go below a certain rate, typically the start rate.”
For home equity loans, waiting might work — but there’s really no guarantee. And if you need the cash for something now, acting sooner may be necessary.
“Since it is impossible to predict the future path of interest rates, customers who are looking to tap into their home equity today should act, instead of trying to time the market,” Miskunas says. “Borrowers can always look to refinance high-cost debt if interest rates decline in the future.”
How to get a lower rate
If you’re applying for a home equity loan or HELOC soon, there are steps you can take to minimize your interest rate. To start, improve your credit score. The higher your score, the lower your rate will likely be. You can also reduce your debts or increase your income, as this lowers your debt-to-income ratio (DTI) and the risk you pose to a lender. A lower DTI can also get you a lower rate.
Finally, talk to a loan officer or mortgage broker early in the process. They can help you prepare for your application and guide you on how to get the best rates.
Find out more about your home equity borrowing options here today.
7/8: CBS News 24/7 Episode 1
LeBron James re-signs with Lakers to make him and Bronny first father-son duo on same NBA team. But they aren’t the only family members to play together.
Here’s how a 2024 Fed rate cut will affect home equity loans
7/8: CBS News 24/7 Episode 1
LeBron James re-signs with Lakers to make him and Bronny first father-son duo on same NBA team. But they aren’t the only family members to play together.