If you’re looking to get a used car in Canada, but you have bad credit, you’re probably looking to improve your credit score.
Simply raising your FICO score by 50-100 points can result in a much better financing deal for a car – so it’s in your best interest to reduce your debt load before buying a car.
Not sure how to eliminate debt and improve your credit score? The method suggested by most debt advisors is called the “debt-snowball” method. In this article, we’ll discuss this method, and how you can use it to boost your credit score.
What Is The “Debt-Snowball” Method?
The name of this debt-reduction technique comes from how it works. Essentially, you begin by paying off your lowest dollar-value debt – while only making minimum payments on your other debts.
Once you have paid off your smallest debt, you move on to the next-largest debt, paying it off in full while making minimum payments on your other debts. This process is repeated until you have paid off all of your debts.
This is a very effective method of debt relief. As you begin paying off small debts, you’ll get a sense of accomplishment, and you will also free up more money to begin paying off large debts. Your debt payments, over time, will “snowball”, and it will become easier for you to pay off your larger bills.
This is in contrast to the “debt avalanche” method. This method encourages you to pay down high-interest debt first, regardless of the amount of the loan. In theory, this will save you quite a bit of money on interest payments.
However, the “debt avalanche” often requires you to have quite a bit of money to put towards each payment, making it less suitable for those who are in more precarious financial situations.
How Does The Debt-Snowball Method Increase My Credit Score?
So, how can using the debt-snowball method help you increase your credit score? Here are a few ways.
- Reduces debt utilization – Ideally, your debt utilization should be 10-30% of your total available credit. For example, if you had a $1000 credit card line, you would want to use only $100-$300 if its balance. If you have a very high debt utilization, your credit score will suffer for it.
Because the snowball method allows you to pay small debts off first, you can quickly reduce your debt utilization, improving your credit score.
- Makes it easier to make all of your payments on time – Because you’re only paying minimums, except for your smallest debt, you will be more likely to make all of your payments on time. Making 2-3 months of on-time payments can boost your credit score significantly.
- Increase credit available to you – As you pay off credit cards, you will have more credit that you can use. Even if you don’t use a credit card that you’ve paid off, having a $0 balance will help decrease your debt utilization, and allow you to have more flexibility.
Make A Budget, Cut Back, And Get Started With The Debt-Snowball Method!
Taking the time to make a comprehensive monthly budget and cut down on unnecessary expenditures – such as eating out, buying clothes, and shopping online – is the first step to improving your credit score.
So make a budget, see how much money you can devote to paying down your debts, and start using the debt-snowball method today. You’ll be able to save quite a bit of money in the long run, and dramatically improve your credit score, in most cases.
Need A Car Now? Got Bad Credit? At Ride Time, It’s No Problem!
Sometimes, you don’t have the luxury of waiting until your credit improves to buy a car. Maybe you need it to get to work, or you need to get your kids to school. At Ride Time, we understand this.
That’s why we can get you a great deal on a high-quality used car, even if you have bad credit. As long as you give us proof of 3+ months employment and a pay stub showing $1,500/month before deductions, as well as a valid Canadian licence, we can help you find a car that’s perfect for you.
So shop our cars online now, and get a great deal on a fantastic vehicle – even if you have bad credit!