While financial experts constantly stress about not involving in debts, it’s impossible to put this in action unless you’ve got thousands stashed away. When it comes to buying a home, car or practically anything luxurious, most of us need to rely on credit. At times, even emergency funds cannot meet our sudden financial requirements. In situations like this, applying for an instant money loan makes complete sense. But to qualify for this loan, you need to work on your credit. Yes, unless you have a good credit report, it is impossible to get these loans sanctioned. So, what should be your plan of action? How should you proceed with cleaning your credit? Let’s find out!
Check your Credit Score
Credit scores are the 3-digit numbers used by banks for understanding your credit management habits. When you apply for an instant cash loan, this score is one of the first things that banks will consider. With a good credit score, you’ll not just get the loan, but you’ll also end up qualifying for a higher amount.
If you have multiple dents against your name, it is important to check how they have impacted your score. Usually, your score will be affected by your credit utilization ratio, your repayment abilities, credit history, debt to income ratio, and any other factor that the bank deems fit.
In case you have a low credit score, confront the situation immediately, and work towards increasing your score.
List out Your Good and Bad Debt
Now that you’re left with a mountain of debt to deal with, it is important to differentiate between the good and bad debt. Yes, not all debt is bad. For instance, if you have credit card bills that you pay on time, they won’t qualify as bad debts. This is because the credit card goes a long way in building your credit history. Similarly, the debt against your education loan won’t be considered bad either, since it is likely to increase your earning potential.
However, other debts that are usually a result of impulsive decisions are likely to cost you big time! This can be an instant loan debt you had taken for a vacation or a personal loan debt you had taken for your wedding last year.
Ideally, any debt that you cannot manage qualifies as bad debt.
Figure Out A Plan
Let’s face it: it’s impossible to pay off all your loans at once. So, you need to devise a plan as to how you’re going to pay your debt. Here, you can either follow the snowball method whereby you start clearing your small debts before moving to larger ones. Alternatively, you can also follow the avalanche method, where you tackle your high-interest debts before moving to the low-interest ones.
In addition to this, you should also create a budget and follow it strictly. This will prevent the possibility of financial mishaps. Finally, if nothing works out, take up an instant loan to consolidate these multiple high-interest debts. This is a simpler way as you’re only required to make a single payment every month.