New to the Live Richer Challenge: Credit Edition? Learn more about it HERE.


Week 2: Credit Improvement

Day 10: Amounts Owed

Today’s Easy Financial Task: Learn how to reduce the amount of debt you owe to improve your credit score.

How to rock this task:

  • Review the amount of debt you owe in total (credit cards, auto loans, personal loans, mortgages, etc.)
  • Use the debt snowball to reduce your debt
  • Request a credit limit increase on your credit cards to reduce your credit utilization
  • Apply for an installment loan to reduce your credit utilization


Welcome to Day 10 Dream Catcher! We’re just about halfway through this Challenge. Woot, woot!

Yesterday, I gave you the method that I use to make sure my bills are always paid on time. Remember, paying your bills on time is the biggest part of your credit score, so it’s something you want to be super vigilant about.

The amount of debt you owe is the next component that has the most weight on your credit score. For a quick recap:

  • Payment history: 35% of your score
  • Amounts owed: 30% of your score
  • Length of credit history: 15% of your score
  • Type of debt: 10% of your score
  • Inquiries: 10% of your score


There are three factors that make up the amounts owed component of your score including your credit utilization, amount owed on installment loans, and your balances overall.

To improve the amounts owed portion of your score you can do these three things:

1.) Pay off some of your debt (a.k.a. reduce the amount you owe)

2.) Request a higher credit limit on your revolving accounts (i.e. credit cards) to reduce your credit utilization

3.) Use an installment loan to pay off your revolving accounts

Let’s cover them in detail.


Reduce the Amount You Owe

Lowering the amount of debt you owe may sound easier said than done, but I have a tactic you can use to get the ball rolling (pun intended) on your debt repayment plan.

It’s called the debt snowball method!

The debt snowball is when you pay off debt from the smallest to largest balance. By default, your mortgage will likely be the debt you tackle last.

If you have credit card debt with high interest, you don’t want to ignore it entirely while you repay other debt. So, next week, I’ll teach you a few ways you can reduce interest rates on your revolving debt.

For now, let’s focus in on setting up your debt repayment plan.

Here’s what to do:


1) List out all of your debt from lowest to highest balance.

2) Figure out how much money you can squeeze from your budget to put towards debt. Think about savings you can find from cutting excess. (If you need help coming up with a budget that will allow you to devote more money to debt, check out my bestselling book, The One Week Budget, available on Amazon)

3) Pay the minimum on all of your debt. Set up automatic payments to make the minimum payment on each debt.

4) Pay the minimum and a little more on the smallest debt. The debt that’s at the top of your list should get more attention. Put any excess cash you can find in your budget towards this debt.

5) Move on to the next debt on your list. After you pay off the first debt, apply all the money you used each month to pay off the first debt towards the second debt on your list. This means the automated payment for your second debt should now include the minimum payment from your first. Put all excess money you can find from day-to-day towards the second debt as well.

6) Keep the snowball rolling. Once the second debt is paid off, follow the same cycle for the third. Automate the money that was going to the first and second debt to the third debt.

You should keep going with the debt snowball until it pays off all of your debt. You’ll begin to see positive results in your credit score as your debt decreases.

Need more help? I’ve created a My Debt List spreadsheet that you can access for free HERE


Request a Higher Credit Limit

To calculate your revolving credit utilization, you need to:

  • Add up the credit limits on your revolving accounts
  • Add up the balances on your revolving accounts
  • Divide your balance by your credit limit
  • Multiply by 100

You want your revolving credit utilization to stay below 30%. If your revolving credit utilization is above 30%, there are two variables you can change to lower it.

You can pay off some debt, which we discussed above, or you can ask your credit card company for a higher credit line.

To do this, pick your oldest card with the best payment history and call the customer service number on the back. Ask the customer service representative for a credit line increase.

You’ll have the best bet at getting a credit limit increase approved on an account with good standing, but it doesn’t hurt to ask. One thing to keep in mind is that a credit line increase may trigger a hard inquiry on your credit report which can impact you a few points.

Be sure to ask the customer service representative whether or not the increase will require a hard pull.


Pay Off Credit Card Debt With an Installment Loan

If you qualify for an installment or personal loan that has lower interest than your credit cards, using one can alleviate the debt that’s calculated in your credit utilization to improve your score.

Remember, there’s a difference between revolving debt (credit cards) and installment loans (i.e. personal loans, auto loans, and mortgages.)

Credit card debt is used to calculate your credit utilization which has the most impact on the Amounts Owed part of your score. If you transfer your credit card debt over to an installment loan, your scores will increase because your credit utilization will decrease.

The benefit of a personal loan is also twofold. Your credit utilization will decrease and you can get a lower interest rate with a personal loan saving you money.

Double whammy!


Here’s how to find an installment loan:

1) Go to MagnifyMoney to search for a personal loan that has low fees and a lower interest rate than your credit cards. Use this link: kk

2) When you find a personal loan that has favorable terms, make sure you read the details and confirm:

  1. The loan interest rate
  2. How long the loan term is
  3. Whether applying for the loan will trigger a hard inquiry on your report (don’t worry – none of the providers used in the tool with MagnifyMoney use a hard pull)
  4. If there are any fine print fees you should be aware of


Important Tip: Factors that determine the full cost of an installment loan include the interest rate, your monthly payment, and how long the loan term is.

Make sure to ask how much you’ll pay in interest for the entire loan term to find an installment loan that will save you the most money.

Now, it’s time to get to it.

First, follow the steps above to set up your debt repayment plan. Next, automate your minimum payments and focus in on repaying your smallest debt first.

Lastly, reach out to your credit card company to request a credit line increase or shop around for a personal loan to reduce your credit utilization.

That’s it for Day 10 Dream Catcher!

Remember, if you need help during today’s task reach out to your accountability partner(s).


Share what you’ve learned today with your tweeps:

Today I learned how to reduce the amounts owed on my credit report. Day 10: #Liverichercredit Click To Tweet

Live richer,



You can reach out to me here:

Twitter: @thebudgetnista

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Private Forum: Dream Catchers : LIVE RICHER

Thanks to our sponsor, MagnifyMoney, for today’s post. You can visit them HERE.


P.S. Don’t forget to get your free Live Richer Challenge: Credit Edition Starter Kit. Get it HERE.

*** Need Help? Feeling Overwhelmed? Want to work with someone one-on-one to improve your credit? Netiva “The Frugal CrediTnista” is offering her renowned, full credit improvement services & consultations at a special discounted price just for Dream Catchers! Learn more and get the help you need, HERE. ***


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  • Sheena Curry

    What about doing a balance transfer to another credit card with a higher credit limit?

  • Mz Red

    I messed up these last few months of 2016 and I have a TON of inquiries. Between purchasing 2 vehicles and a home and applying for credit cards, should I even try to apply for the personal loan since I have a LOT of inquiries already and that is a negative factor as well.

    • Tre

      I wouldn’t and that’s what I just told myself, no more loans. Inquiries stay on for at least 2 years, so wait a few if you choose to.

  • Cherise Montague

    I learned the concept of the debt snowball and will pay off my smallest card within 3 months.

  • nichale

    Would my credit score increase if I pay my auto loan off?

    • Casey

      Not necessarily. I paid mine off, and my score actually dropped as a result.

      • nichale

        Wow. Thanks good to know. Thank you!

        • nichale


  • Crabbytab

    Ok, I’m sitting in my car waiting for my son to finish tutoring so I am taking this time to complete the debt list. I have 2 credit cards with similar balances; one is 0%interest and the other one is around 18%. Obviously I pay the one with the higher interest rate first then tackle the other one. My 2 largest debts besides my student loans (mortgage and car loan) are past due!!! Help, I need a plan to get these 2 current!!!! I plan to open my second checking account at my primary bank for my automated bill pay!!!!!! I can’t wait to tackle this debt and breathe again!!!!! Thank you so much Tiffany!!!!!!!!

  • Leilani Mayfield

    Since I am currently not working, I will not be applying for loans or setting up automatic bill pay just yet. I plan to cash in my 401K which will help me get my credit card balances down and pay off one personal loan. I still will have my student/parent loan and a car payment. I learned the debt snowball method and will apply it to my action plan.

  • Wanda

    On Day #10: So I’m listing my debt, oh my! However, it’s not as much as some but it’s still too much for me. I ought to be able to pay off my lowest owed amount within 2 mos. The personal loan sounds like a good idea, I might just try that. Setting up autopay this week. I have my insurances, student loan, and mortgage on autopay. Still seems like a lot more. Thanks Tiffany!!

  • Juanita

    Hey I rocked this task! My list is complete! Consolidated my cards with a loan from my credit union! Excited!!

  • Nikita’ Mathews

    Ok…forgive me in advance for the long drawn out post- I have each of my debts listed out even called the few accounts with collection agencies. I have a lower interest installment loan that would allow me to roll in a few higher interest credit cards. My question is I have some accounts with collection agencies that don’t accrue interest obviously and I’ve been paying them down for the past yr… once I pay off those higher interest account it wont leavr enough to fully pay off one of those collection accounts so do I change course for credit raising purposes and pay those items reporting on my credit as in collections to get those taken care of and removed or move forward with paying off the credit cards (let me say that I have closed all these accounts expect 1). ?? Just looking for some imput on what may help me raise my score. I’m in my house and have a mortgage already, and a car that is fine but I’m waiting to get married and go into my marriage being an asset.

    • Stella Nettles

      I will pay off my lowest debt within six months.

  • LaTerrica

    This was an easy task. Complete

  • Tesa Currie

    Most of my debt is student loans, a few of them are pretty low and can be paid off with no problem. My issue is the bigger loans, it would take the rest of my life to get those paid off. I tried consolidating my student loans, but the monthly amount was ridiculous, so I could not do it. Any suggestions on student loan debt. Help!

  • Tonya McMillon

    This really was helpful, but my problem is I have way too much debt… cards, personal loans, etc. My credit score is ok as well. My question is what do I do when I can’t get another loan to pay off the credit card debt because my debt to income is extremely high? I’ve tried 3 different companies…to include my credit union and was declined.

    • Emily Henderson

      Have you tried a secured credit card? When you consistently use and pay a secured credit card offers will come for an unsecured card.

  • Nicole Embry-Marable

    Today I revisited how the snowball effect works. I will implement this tactic starting this month. Also, I will apply for a credit card to start rebuilding my credit. Feeling motivated!!!

  • Angelina Jackson

    I’m motivated to use the Snowball effect. Thanks for the info!!