Tips to getting out of debt and boosting your credit score in 2021

RALEIGH (WTVD) -- The COVID-19 pandemic continues to cause financial heartaches into the new year. If your hope is to improve your finances and increase your savings, the Better Business Bureau has some tips to help you get out of debt.

The new year is always a good time to evaluate your finances. One of the first things you can do is take a look at your credit cards.

Credit cards are known for their high-interest rates, and this can waste a lot of money over time. The BBB suggests you see if you can use a balance transfer offer to switch to a card with a lower rate. Do your research on the BBB's website first. Consumers nationwide filed more than 8,933 complaints against credit card companies in 2019. Make sure to read the terms and contract very carefully as there may be big penalties if you miss a payment. If you have multiple cards, decide which debt-paying strategy is best for you.

SEE ALSO | How one couple got themselves out of $50,000 in credit card debt

There are a lot of free tools out there to help boost your credit score.

The BBB suggests this free debt solution tool to find options for managing your debt. Another great tool to help your credit score is to look into programs offered by the three big credit bureaus, including Experian Boost.

The biggest thing to remember is to not get scammed from debt relief companies' promises of big relief.

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"It's actually illegal in North Carolina to ask for any upfront fees for any debt collection services, so that is a huge red flag. Also, be aware if they are out of state, if they are out of state often times they don't know in state laws and that can also be a red flag," adds Alyssa Parker with the BBB.

Another red flag to watch out for when it comes to debt relief scams is if the company tells you to cut off all communication with your creditor, and only make the payments to the debt relief company.

Here are other warning signs of debt relief scams from the BBB:

  • A debt relief company asks for fees upfront before it settles any debts.
  • The company guarantees it can eliminate your debt or reduce it by a particular amount in a set period of time.
  • The company advises you to cut off communication with creditors.
  • The company won't send you information about its services unless you provide financial information such as credit card account numbers and balances.

  • To get your debts under control, the BBB suggests trying the following instead:

    Contact your creditors to discuss your options for repayment. Most companies are willing to set up special arrangements to help. Be realistic about how quickly you'll be able to pay back what you owe before you agree to a payment plan.

    Talk to a non-profit credit counselor. If you're unable to stick to a budget or if you can't work out a repayment plan, consider contacting a credit counseling service. Find an accredited, non-profit credit counselor in your area by contacting the National Foundation for Credit Counseling at 1-800-388-2227 or www.nfcc.org.

    SEE ALSO | Debt collection scams on the rise during COVID-19 pandemic

    Consider a debt management plan if recommended by a non-profit credit counselor. In a debt management plan, you deposit money each month with the credit counseling organization. The organization then uses that money to pay your bills according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower interest rates or waive certain fees but check with them to confirm these offers. You may have to agree not to apply for or use any additional credit while you're participating in the plan.

    The fees that credit counselors can charge to set up and administer a debt management plan are restricted by North Carolina law. Credit counselors cannot charge more than $40 to set up a debt management plan, and counselors can charge monthly administrative fees of no more than 10% of the monthly payment, up to a maximum of $40 per month.

    Consider contacting a local bankruptcy attorney if your debt situation is especially difficult.
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