How to Pay off Debt Without Hurting Your Credit

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The thought of paying off your debt sounds wonderful, doesn’t it? No more monthly payments, credit card bills in the mail, or those pesky “Minimum Payment Due” reminders on your phone. Hundreds of extra dollars every month to put toward more exciting financial goals.

Paying off consumer and other debt is something we recommend strongly here at Well Kept Wallet. When Deacon and his wife paid off $52,000 in consumer debt in just 18 months, it really had a life-changing impact.

It taught them that they were largely in control of their money, and becoming debt free helped them get on the fast track to achieving financial independence.

If you check out our Debt Success Stories page, you’ll find dozens of stories of people just like you who climbed their way out of mountains of debt.

However, paying off debt can have an impact on your credit score – sometimes for the better and sometimes for the worse.

Here are some strategies that will help you pay off debt without hurting your credit. By using the tips listed below, you’ll be able to reduce or even eliminate your debt while keeping your credit intact.

1. Consider Debt Consolidation

One of the tools Deacon and his wife used to pay off their consumer debt so quickly was to consolidate their debt into one large loan.

Debt consolidation helped them to have one payment to focus on and one large loan to make extra payments to as they worked side hustles and took other steps to help them become debt free faster.

Companies like Credible can be a one-stop shop for finding a consolidation loan to help you pay off debt without hurting your credit, and you can lower your interest rate from average credit card rates of over 16% to as low as 4.99%.

Consolidation loans can be good and they can help you pay off debt faster – if you choose the right company that will help you get the lowest rate available to you and the best payment plan.

However, there’s one more factor that needs to be in place as you work to pay down your consolidation loan.

2. Know that You’ve Got to Stop Using Credit

Many times, people consolidate their debt, only to end up right back in debt again. Why? Because they didn’t make the choice to stop relying on their credit cards.

Technology and rewards programs have made it so easy to pay with everything by using your credit cards.

The problem with this type of financial “convenience” is that it can come with a high cost: a lack of reality about how much you’re spending each month and what you’re spending it on.

This is why it’s so important to commit to stopping the use of credit cards after you get a consolidation loan to help you pay off debt faster.

If you continue to use credit cards as a way to buy now and pay later, you may find your credit card balances creeping right back up again after consolidation. All of your hard work to consolidate and get that debt paid off will be for naught.

Make a promise to yourself that after you create a plan to pay your debt off that you won’t use credit cards as a source of payment anymore.

Here are some tips to help you stick to that promise and stop using credit cards as a primary source of payment.

3. Budget to Ensure You’re Living Within Your Means

One of the reasons people get deep into credit card debt is because they have no idea what their outgoing bills are compared to their monthly income.

Budgets often get a bad rap because they can feel restrictive or as if they’re some sort of punishment for overspending.

Truth be told, a budget is simply a tool to help you gain a clearer understanding of where your money goes each month and to help you learn how to spend your money in a way that is important to you.

A budget will help you determine where your money needs to be allotted each month and will help you gain control over that “black hole of spending” that can eat up so much of your money each month.

When you make a budget, it’s important to remember that you can create your budget any way you want to. There are no right or wrong answers to how you spend your money, necessarily. It’s your money and you can do with it as you please.

However you do owe it to yourself to spend your money in a way that gives you the best life, and that can be accomplished by paying your needs first and covering your wants afterward.

Check out our Starter Budget Form for tips on how to make a budget that fits your lifestyle. Here are some tips to help you create a budget that works for you.

Track Your Spending

Tracking spending was an absolutely life-changing move for me and my family. Five and a half years ago we were deep in debt and the hole was getting bigger every month.

I assumed we simply didn’t make enough money, but after finding the blessed world of personal finance blogs I found out that our problem was likely caused in large part by how we were spending the money we did make.

I used a simply Excel spreadsheet to start writing down every expenditure we made and haven’t looked back since.

But before I did that, I used our credit and debit card statements to try and figure out where all our money had gone the previous year.

What I found was absolutely astonishing. Although I had created a budget, I didn’t really have a clue as to whether or not we were following it because I wasn’t tracking spending.

As I went over our prior credit and debit card statements, I located our black hole of spending. Whereas I thought we were spending roughly $600 a month on groceries, we were actually spending $900 a month.

I thought we were spending about $100 a month on entertainment and eating out, but we were actually spending closer to $275 a month.

Nearly every category I checked revealed we were spending much more than my budget had allotted for.

When I started spend tracking, I could see in real time how much money we’d spent in each category for a given month, and from there make appropriate cutbacks if we were at or near the maximum I’d budgeted for in that area.

For instance, if our grocery budget was $500 and I’d already spent $450 by mid-month, I’d stop buying any groceries that weren’t absolutely necessary. Then, I’d start meal planning based on what was already in the cupboard or fridge or we’d have really cheap meals for the remainder of the month.

Another thing tracking spending did for our finances was that it helped me to realize where my priorities were.

As an example, if I found I’d spent $100 during the month on drive-thru runs, I realized that those stops really weren’t bringing our family much value, and that that money could be better put to use as an extra debt payment.

This is called value-based spending. Budgeting by using a value-based spending plan means that you start to determine which types of expenditures are in line with your values, and which are not.

Implement a Value-Based Spending Plan

Value-based spending is simply about weighing spending decisions to determine what – if any – value they bring to your family’s short and long-term goals.

If an expenditure doesn’t bring any true value to your life, you can make the choice to use that money in a way that brings more value to you, such as when I chose to stop making restaurant drive-thru stops and keep snacks in the car so that we had more money to put toward debt each month.

Implementing a value-based spending plan is effective because it prompts you to consider what expenditures truly bring value to your life.

As I mentioned earlier, technology has taken away our emotional connection with money. In the old days when everyone paid with cash, you could see and feel the money leaving your hands as you bought something.

This tangible action had the benefit of making you think about a purchase as you made it, and about whether or not you really wanted to part with your hard-earned cash.

Credit and debit cards take away the concept of cash and reduce spending simply to a transaction. Using a spend-tracking spreadsheet and analyzing those expenditures with a value-based spending reflection will help you to bring the emotion back into your spending and cause you to be choosier about what you’re willing to spend your money on.

The great thing about using a value-based spending plan is that it’s customizable to your goals and dreams. There are no wrong answers, only a need to identify which spending choices you make truly bring value to your life.

Value-based spending can be a great way to find extra cash to use to pay off your debt quickly too as you stop spending money on things that really don’t matter to you and have more cash to put toward things that do matter to you.

Consider Using the Cash Envelope System

Another tool that helps many people pay off debt is the Cash Envelope System. Simply put, this involves determining how much you’ll spend in non-stationary spending categories each month and putting the coordinating amount of cash into a specific envelope.

For instance, if you decide you’ll only spend a maximum of $400 on groceries in a given month, you’ll put that $400 in an envelope at the beginning of the month and buy groceries only with the money from that envelope.

You’d do the same with other fluctuating expenditures such as entertainment, fun money or eating out funds. Once the money in a given envelope is gone, then you commit to being done spending in that category for the month.

Any leftover money in an envelope can then be used to make extra debt payments. You’ll be surprised how quickly all of those little cash amounts will add up and whittle down your debt balances.

And buying with cash brings some of that emotion we were talking about earlier back into your spending habits.

All of these tools will help you create a system where you no longer have to rely on credit cards to buy what you need but instead be able to pay cash and help ensure your credit card balances stay paid off.

4. Don’t Close All of Your Credit Cards After You Pay Them Off

As you pay off your credit cards, it’s tempting to immediately close out those cards so that you will never be tempted to accrue unpayable balances on them again.

However, closing too many credit cards too fast can create a red flag on your credit card report.

A better option may be to wait a few months in between closing each card, say 6 months or so. Closing several credit cards – or all of your credit cards – in a short period of time can give creditors the sense that there’s a dire situation in your financial life.

Closing one card and waiting a few months before you close another is usually a better strategy for protecting your credit as you work on reaching debt freedom.

It’s also important to leave a couple of credit cards open permanently. Why? First, using a credit card regularly but paying it off in full each month helps to build and maintain your credit score.

It helps show that you are responsible with credit in general. Second, there are times when you may need or want to use a credit card. For instance, using a credit card when you book vacations or car rentals and spend larger amounts of money can offer added protection from fraud.

If a hacker gets a hold of your debit card number, he or she has immediate access to your cash. While you’ll eventually get your cash back with help from bank security, you could be without a large portion of your money for several weeks or months while an investigation is conducted.

Conversely, if a hacker gets a hold of your credit card number they can run up balances on your credit card, but at least they won’t drain your bank account in the process. The balance will simply be erased from your credit card once the fraud is found to be legit.

The moral of the story? If you have credit cards you want to close after you pay them off, do it slowly in order to help protect your credit, but get it done. And keep a card or two open for the reasons mentioned above.

5. Beware of Debt Relief Programs

If you’ve ever looked into paying off large amounts of debt, you’ve probably come across two terms:

  • Debt relief
  • Debt management

The two types of programs sound similar but do different things, and they’re not both necessarily good for your credit rating.

Debt Relief Programs

Debt Relief Programs (also sometimes called debt settlement programs) are programs designed by debt settlement companies in which the company representatives negotiate with your creditors to try and get creditors to reduce the amount you own them and take that reduced and paid balance as paid in full.

The problem with debt settlement programs is multi-fold: First, they will impact your credit score negatively because creditors will report that although the balance is technically paid in full, they had to accept a reduced balance owed in order to get you to pay.

Second, debt settlement programs can come with high fees, thereby hindering your debt payoff as you pay fees to them for getting reductions on the debt you owe.

Third, your creditors are not required to take a settlement option for a lower balance, and a debt settlement company may not be able to help you in all situations or with all creditors.

Fourth, in many cases you need to be at least three to four months behind on your payments before creditors will consider a settlement option.

If you’re current on your payments you likely won’t qualify for participation in a debt settlement program, and you’ll only harm your credit further if you intentionally let your payments get behind in order to qualify for participation in a debt settlement program.

Debt relief or debt settlement could be a wise choice is some situations, say if you are already several months behind on payments and there’s no end in sight to your financial woes.

If getting caught up or increasing your income to bring in more cash to pay your bills isn’t an option, and it seems as if there is no relief on the horizon, debt settlement might be an option, but it – along with bankruptcy – should be a last resort.

Debt Management Programs

Debt management programs won’t harm your credit as much as a debt settlement program will, however these types of management programs are far from risk free when it comes to your credit rating.

Debt management programs work like this: The debt management company works with your creditors to get you a lower interest rate on your debts and accept a fixed monthly payment.

You pay one lump sum payment to a debt management firm each month, and they in turn pay your creditors a pre-arranged payment on each debt on your behalf with the lump sum payment you send them.

Debt management programs can be good if you are overwhelmed by the number of debts you have and need help managing them all, but debt management programs also have downsides.

First, while some debt management programs are non-profit organizations and will help you for free, some do charge fees that can eat away at your debt repayment.

Second, debt management programs don’t work for every situation: if you have so much debt that you can’t afford the monthly payments the company and the creditors agree to, you might not qualify for the program.

Since debt management programs typically try and arrange your payments in a way where you are consumer debt free in five years, the lump sum payments may be higher than what you’re paying now and not affordable to you.

Third, debt settlement programs can have strict guidelines. In many cases, missing a payment on a debt management program will result in automatic disqualification from the program by your creditors.

This could put you in a worse situation than you were when you started as your creditors will start to panic and take measures to ensure you’ll still pay your debt, such as sending collection letters and making collection phone calls.

Like debt settlement programs, debt management programs will also impact your credit rating, although often not as heavily as a debt settlement program will.


It is possible to pay off your debt without hurting your credit, and it’s our goal at Well Kept Wallet to help you do just that.

If you click on the “Pay off Debt” category, you’ll find hundreds of articles geared toward helping you find the tips you need to get debt free faster.

Our “Make Money” category is designed to help you find ways to increase your income so that you can pay off your debt, save for a big purchase or reach other financial goals you have.

And our “Save Money” category has articles that will help you save money on every day expenses so that you have more money to put toward other financial goals such as paying off debt as well.

With the right plan, you can become debt free. We’ve watched and written about how hundreds of people do it – people just like you and me.

The Well Kept Wallet vision is that everyone reading will find tips and tools to help them live a better financial life; one that will help them be able to go on to help others. And paying off your debt is a great way to start doing that.

Have you considered implementing a plan to help you pay off debt? If not, what’s stopping you? If so, how is your journey going? Share with us in the comments below.


7 responses to “How to Pay off Debt Without Hurting Your Credit”

  1. Josh Patoka says:

    We track our spending each month and I keep two of our old credit cards in a drawer that we never open. I still check their balance each month, using a credit monitoring app, or by logging into the account website, just to make sure the card number hasn’t been compromised (it’s happened to us once).

  2. Keith says:

    I just tracked my spending and saw that I spent $1000 on food this month alone. Yes it is time for me to change some of my spending habits.

    • Deacon says:

      It’s amazing what the simple act of tracking will show you! But now that you know, as you pointed out, you can change this trend and use your money better.

  3. FactorLoads says:

    I want to get out of debt. I think that this article will definitely help me. I will follow what you said here. I will also consider debt consolidation. Thanks for sharing this article.

  4. Jenna says:

    I definitely want to get out of debt. This article is very helpful for me. I think that this will definitely help me to get out of debt. Thanks for sharing this article.

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