10
Jul

Many Americans have enjoyed financial success since the end of the recession, with hiring rates rising and workers earning a little more in general. However, even these improvements haven't been enough to help some get back on track with their finances, and some have had to lean on credit repair efforts to get their household finances back together overall.

In one recent case, a married couple that had a combined $136,000 in debt spread across a number of accounts went to some extreme measures as a means of getting themselves back to normal, according to a report from Daily Finance. They worked as many as six part-time jobs apiece and devoted about 70 percent of their annual incomes to paying down their outstanding balances. The problem for this couple — which had $70,000 in student loan debts, a combined $40,000 on two auto loans, and more car financing totaling $26,000 co-signed with the husband, David's, brother. They thought having that much outstanding debt was somewhat normal, and it wasn't until they attended a credit repair workshop that they learned the truth of their situation.

During that time, they started looking for low-cost solutions in their lives, clipping coupons, finding free entertainment, and significantly limiting purchases to just $200 in spending money and $350 for food every month, the report said. However, with that kind of diligent effort to bring in more income, cut spending, and then devote it entirely to paying down outstanding balances, as well as trading in their two cars for one family vehicle, David and his wife Jennifer were able to reduce all their outstanding balances to zero in just 21 months, rather than the five to seven years they initially projected.

Extreme efforts yield extreme results
Obviously, David and Jennifer went to serious lengths when they realized they needed to repair credit and get their finances back in order fairly quickly, but they were in rather an extreme situation given how much they owed. However, the methods they undertook when trying to cut their admittedly massive debts are those other borrowers with more modest outstanding balances can apply just as easily.

For one thing, taking the time to cut any kind of debt is often a very good idea, but this is particularly true of credit card balances. This is because these balances carry extremely high interest rates and therefore can grow rather quickly if they are not addressed in a timely manner. Further, the total amount of debt owed across all accounts versus their overall credit limits (known as "credit utilization ratio") makes up a full 30 percent of any given person's credit scores, and for that reason, big debts can do massive damage to one's standing, and making concerted efforts to cut into them can be a major help. In most cases it's wise to tackle the balances with the highest interest rates first.

Fortunately, any amount of money contributed to an outstanding credit card balance above the monthly minimum listed on the bill must be applied directly to the principal, rather than any interest charges accrued, meaning that debt will shrink more quickly with every extra dollar contributed. Cutting spending as significantly as David and Jennifer did and then contributing even some of that to monthly credit card bills will therefore have major benefits financially. 

However, when reducing debts to zero, it's important that consumers don't then close their credit card accounts, as doing so can do a little bit of credit damage. Such a decision will likely impact their utilization ratio, the average length of time they've held each of their accounts, and potentially their credit mix (the number of different account types in their name), the latter two of which make up 15 and 10 percent of scores, respectively.

In most cases, consumers won't have to take six jobs and slash their monthly spending quite so significantly as this couple did, but the ideas behind their efforts were certainly good ones worth following.

The final step to good credit
Of course, getting smart about finances in general is a great way to get all aspects under control, but there is still a step that all borrowers should undertake when they're trying to get their credit in order. Taking the time to obtain copies of their credit reports and check them over closely for any potentially unfair markings is often a great way to make sure everything to do with one's credit standings is as it should be.

However, if an unfair marking is discovered in the process of checking over these documents, it might be wise to contact a credit repair company about the issue. Doing so may allow borrowers to have the potential problems sorted out as quickly as possible, and return their credit scores to where they deserve to be.