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How to get out of debt

By making regular debt repayments, you are not only already on the road to getting out of debt, but you are also setting yourself in good stead of getting a good credit score.

We at MyCreditMonitor have put together the following steps that we hope can help you achieve this.

Step 1 – Gather Your Tools

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Dig out that calculator, find a highlighter and get hold of your statements – of your credit accounts – from the past 6 to 12 months

Step 2 – Scanning and Skimming

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Scan through the statements and highlight those items that reflect repayments taken out by lenders who you owe money to. This includes mortgage repayments, personal and payday loan repayments, monthly instalments on consumer items as well as credit owed to credit card issuers.

Step 3 – Weighing and Assessing

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Now on a piece of paper, or in an Excel spreadsheet (we are in the digital age after all) list the items you have highlighted and total up the amount of money that is going out of your account on a monthly basis.

Take a good look at this list and see which of these items you could fully pay off now to reduce the total amount of debt that you have.

Step 4 – Considering and Consolidating

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If you find that you are unable to pay off any of these items now, you could consider applying for a debt consolidation loan. This is a loan that pays off the other debts that you have had, but should only be considered taking on if the rate of interest for this loan is lower. Consult a debt counsellor, or a debt advisor for more clarity and advice on this.

Step 5 – Scoring and Qualifying

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Having a good credit score is a qualifying factor for getting a debt consolidation loan. This means you have maintained a good credit history, i.e. maintaining payment regularity and having no bankruptcies and insolvencies on your credit report.

By getting your credit report - even before applying for a debt consolidation loan - you can take stock of any factors that are lowering your credit score, especially incorrect information.

Step 6 – Checking and Correcting

If you find that your credit report has information which is incorrect then this needs to be reported to the Credit Reference Agency (CRA) – i.e. the company that collects information relating to your credit profile and creates credit reports for lenders to use to gauge your level of creditworthiness.

A credit report usually contains the following information:

Your personal details: Your name, date of birth, current and previous addresses and any previous names that you may have had.

Your credit history: Information on all the loans and credit accounts that are in your name.

Enquiries or ‘Searches’: This refers to who has run a check on your credit profile, such as a lender (banks, mortgage providers, building societies, loan providers, etc.) a potential employer, or even a potential landlord if you are thinking of renting a property.

Your listings in public records: If you have any County Court Judgements, or have previously been declared bankrupt or insolvent, if you are on the electoral roll, or have been a victim of identity fraud, then these listings will appear on your credit report too.

All this information is represented through a mathematical calculation that derives a number from 0 to 999 or a rating from 0 – 5 depending on which credit reference agency is processing your credit report.

This number is known as a credit score and it is important to bear in mind that not all credit reports include your credit score automatically and may even charge you extra for it. So, do make sure that the credit report you are ordering comes with your credit score.

Step 7 – Applying and Implementing

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If a debit consolidation loan is the exit door to your financial woes, then a credit report is the lock and your credit score is the key to this door. This is the relationship between a credit score and applying for a debt consolidation loan.

We kid you not when we say this because lenders use credit reports to gauge your level of creditworthiness – i.e. whether they can trust you to pay them back the money that you have borrowed from them.

Take a step ahead from the lenders you are think of approaching for a debt consolidation loan and ensure a better chance of being successful with your application by doing the necessary preparations. Getting your credit report, finding out what your credit score is and taking all the steps mentioned here can not only help you improve your credit score but can also increase the likelihood of you getting a debt consolidation loan – the pathway to get out of debt.

Step 8 – Exiting and Avoiding

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Following all these steps can help you get out of debt and the only thing you will then need to do is to make sure that you stay out of debt. Keep a sharp eye on your finances by maybe checking your accounts once a week to stay on top of your financial activity and make sure that you are meeting your debt consolidation loan repayments regularly.

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