If you’re struggling with debt, you may feel overwhelmed. And when that happens, you may feel like putting money towards seemingly insurmountable balances is fruitless.
But that’s not really the case. In fact, with just $1,000 there are many steps you can take that will have a big impact on your debt, and therefore your credit.
Because your credit score can affect so many aspects of your life — from loan approval to getting the job you want — it’s important to begin to repair it as soon as possible and to get your debts under control before your credit score takes a serious dive.
Here are five things you can do with $1,000 or less that will make a big impact on reducing your debt, and improving your credit score as a result.
Catch up on any late payments
Missing one payment can cause your credit score to fall as much as 100 points. That’s because payment history is one of the main criteria lenders use to determine creditworthiness. Once a payment is more than 30 days late, it will definitely impact your credit score in a negative way.
If you have a delinquent payment (or payments), taking care of those and bringing them current is the most important thing you need to do to begin to see your credit score rise. With $1,000 you should be able to pay missed or late payments and any late payment fees imposed from having missed the payment when it was originally due.
Remember that reported lates on your credit report, as well as fees, continue to pile up month after month on any accounts as long as they remain delinquent.
Knock out your smaller balances
When your credit is maxed out, you may think that the bigger balances should get more attention. But in reality, paying off smaller balances entirely can make a big difference in your score.
“If you’re able to eliminate the lower ‘nuisance’ balances, then your scores will also improve even if you still have other cards with balances,” credit expert John Ulzheimer, who was previously with FICO and Equifax, told GoBankingRates in a recent article.
Start by paying off your smallest card balance, and then the next highest, and so on. If you have several retail store cards with smaller balances, for example, you may be able to wipe out two or more of them, which will have a positive impact on your score even while you carry balances on other cards.
After those smaller balances are paid off, you can further improve your credit and chip away at debt by applying the total of the minimum payments you were making on those smaller accounts to those with larger balances.
Pay off a high interest card
If you don’t have a lot of little balances you can wipe out with $1,000, then you should evaluate the interest rates on all of your cards and loans. If you have a single card with a balance of $1,000 or less but it has a higher interest rate, consider paying it off in full. Not only will this bump up your credit score, it will save you money in the long run considering that a $1,000 balance on a card with a 20 percent interest rate could end up costing you over $165 per year in interest if you’re making only the minimum payment.
Hire a credit repair service
If your debt is out of control and your credit score is suffering, working with a trusted and reputable credit repair service is one of the best investments you can make.
Working with a credit repair law firm will ensure you have a fair, accurate, and substantiated credit report. A law firm can help you understand your legal rights and show you how to leverage them to improve your credit. It can also significantly expedite the credit repair process, while providing many benefits and additional services to not only improve your credit now, but protect it in the future. It’s best to select a firm that has direct relationships with all three credit reporting bureaus — Experian, TransUnion, and Equifax.
Make an early payment
Even if you are making your loan and credit card payments on time, if your payment due date falls at the end of the month, it could be negatively impacting your credit report. Many credit card companies report balances at the end of the billing cycle, which may end before you make your monthly payment. In this case, the balance reported to the credit bureaus can be higher than the balance you’d expect to show up based on your payment.
It’s important to be aware of this, particularly if you are using a rewards-based card, where consumers typically charge up the highest balances each month in order to reap rewards such as cash back. Depending on payment times with these cards, large balances may be reported to credit bureaus. Making your payment earlier in the month, and before the end of the billing cycle, will reduce the balance that will be reported to credit reporting agencies.
While $1,000 may not solve all of your debt and credit issues, if applied wisely it’s a big enough amount to make a positive impact.