There are already tons of month-long observances celebrated during March, including:
- National Celery Month
- National Kidney Month
- Youth Art Month
March is also National Credit Education Month — a 31-day stretch of the year during which Americans are encouraged to:
- Clean up their finances
- Fix their credit scores
- Climb out of debt
Does America really need an entire month dedicated to credit awareness? Turns out, we do.
Why National Credit Education Month Is Important
Your credit score is what lenders and banks use to assess your ability to pay back whatever money you borrow:
- You need at least some credit history to do anything from requesting a mortgage to buying a car to opening a credit card.
- You need a good credit score to qualify for the lowest-possible interest rates when taking out loans.
As such, understanding and managing your credit score has always been important.
It also doesn’t help that consumer debt is on the rise nationwide. Below are just a few shocking statistics:
- The average U.S. household carries nearly $7,000 in revolving credit card debt.
- Americans collectively hold $3.96 trillion in consumer debt.
- An estimated 7 million of us are at least 90 days behind on car payments.
- Student debt has now reached $1.5 trillion (spread across 44 million Americans).
Add all this together, and it becomes clear why National Credit Education Month matters. We have a lot of debt, and it’s becoming harder and harder to manage.
This is especially true for consumers (who are the primary target of this annual awareness month). However, credit education is also important for businesses, since payment fraud, identity theft, and skyrocketing debt can affect merchants.
How to Observe National Credit Education Month
The first step involves understanding how credit scores work. They’re usually based on numerous factors including:
- The amount of debt you carry
- The age of that debt
- How often you pay on time
- The number of loans you have
Because you already know your loan and repayment history, you can likely guess your score. The scale ranges from 300 to 850, with the average score hovering around 700.
Next, you’ll want to verify your guess by requesting a credit report from one of the three major reporting agencies:
Once you have your credit report in hand, look for any mistakes, including:
- Unusual spending activity
- Charges you don’t recognize
- “Unpaid” balances (you’ve already paid)
If you spot anything out of the ordinary, it’s important to correct it ASAP by contacting your bank, any “named” merchants, and the reporting agencies to sort the process.
It’s a time-consuming and laborious process. If you let these errors fester, though, your credit score will suffer, making it harder to climb out of debt.
Finally, you’ll need an action plan for paying down the remaining “legitimate” debt. Even if your credit report looks clean, the ultimate goal is to improve your score as much as possible. Doing so will help you qualify for lower interest rates in the future.
Below are some tips to get you started.
How to Climb out of Debt During National Credit Education Month
Two of the most popular strategies to reduce or eliminate debt include the Snowball Method and the Avalanche Method.
Let’s take a look.
1. The Snowball Method
With the Snowball approach, you make the minimum payment on all of your outstanding debt (so as to avoid late fees or interest hikes). Any money left over should be devoted to the smallest loan obligation.
Once that first balance is paid, you can turn your attention to the next smallest loan in the bunch.
This strategy keeps you motivated, since you’re able to see your progress very clearly. The downside of the Snowball method is that you end up paying more in interest than you do with the following strategy.
2. The Avalanche Method
With this approach, you still pay the minimum amount on all of your balances. If there’s any money left over, use it to pay down whichever account has the highest interest rate.
This strategy minimizes the total amount of interest paid as you get out of debt. It’s a bit harder to track your progress and stay motivated, but the Avalanche approach ultimately saves you the most money.
How Will YOU Recognize National Credit Education Month?
Ideally, you should revisit these strategies periodically throughout the year, but with our increasingly busy lives, that’s not always possible.
That’s why you should set aside time this March to get your credit history in shape.