Does Paying Off Debt Improve Your Credit Profile?
- UpdatedOct 31, 2024
- Bad credit and debt problems often go hand-in-hand.
- If you are suffering a financial hardship, focus on paying off debt.
- Your credit score will improve once you start making timely payments and reduce your debt.
Debt problems and bad credit is a double whammy
Many people who have debt problems often suffer from a bad credit profile as well. It’s a double whammy and definitely something that needs to be taken care of. So, how do you approach the issue? One obvious way to address your credit profile is to pay your bills on time, and when possible, in full. If you have extra cash, use it to pay down any outstanding debt.
But not all debts have equal influence on your profile. Depending on your individual circumstances, a high priority may be to pay down debts that will be recognized by several credit profiling factors. Getting rid of credit card debt may give you faster results than paying down other debts, because it is generally a riskier type of unsecured debt. Once you pay off a card, you may see a positive impact on your overall profile.
Focus on paying off your debt before improving your credit
Your credit profile should be important to you, because it has the power to determine a wide range of things in your life. If your credit profile is not as strong as you want it to be and you are looking to make it stronger, it may seem intuitive to pay off all of your debts. However, this strategy may backfire. You should always analyze each debt and predict how making changes to it will affect your overall credit profile.
If you choose to settle your debts for less than you owe (a.k.a. use debt resolution), talk to a certified debt specialist to get more information about how this process works. The benefit of debt resolution is that it is often a cheaper and quicker option for resolving debt. It may be especially helpful for people with high debt loads ($10,000+) and are struggling to keep up with their payments.
There are multiple ways to deal with debt and credit. If you are unsure which method is best for you, give our team a call at 800-910-0065 and we’ll guide you through your options!
Debt relief stats and trends
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during September 2024. The data uncovers various trends and statistics about people seeking debt help.
Debt relief seekers: A quick look at credit cards and FICO scores
Credit card usage varies significantly across different age groups, reflecting diverse financial needs and habits.
In September 2024, the average FICO score for people seeking debt relief programs was 577.
Here's a snapshot by age group among debt relief seekers:
| Age group | Average FICO 9 credit score | Average Credit Utilization |
|---|---|---|
| 18-25 | 566 | 90% |
| 26-35 | 572 | 84% |
| 35-50 | 572 | 84% |
| 51-65 | 579 | 82% |
| Over 65 | 595 | 81% |
| All | 577 | 83% |
Use this data to evaluate your own credit habits, set financial goals, and ensure a balanced approach to managing credit throughout your life.
Home-secured debt – average debt by selected states
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) (using 2022 data) the average home-secured debt for those with a balance was $212,498. The percentage of families with mortgage debt was 42%.
In September 2024, 25% of the debt relief seekers had a mortgage. The average mortgage debt was $236504, and the average monthly payment was $1882.
Here is a quick look at the top five states by average mortgage balance.
| State | % with a mortgage balance | Average mortgage balance | Average monthly payment | |
|---|---|---|---|---|
| California | 20 | $391,113 | $2,710 | |
| District of Columbia | 17 | $339,911 | $2,330 | |
| Utah | 31 | $316,936 | $2,094 | |
| Nevada | 25 | $306,258 | $2,082 | |
| Massachusetts | 28 | $297,524 | $2,290 |
The statistics are based on all debt relief seekers with a mortgage loan balance over $0.
Housing is an important part of a household's expenses. Remember to consider all your debts when looking for a way to get debt relief.
Tackle Financial Challenges
Don’t let debt overwhelm you. Learn more about debt relief options. They can help you tackle your financial challenges. This is true whether you have high credit card balances or many tradelines. Start your path to recovery with the first step.
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