3 ways to settle your debt without hurting your credit score

Recent data shows that credit card balances (and delinquencies) have been rising steadily for the last three years. And, the reasons are simple: With high inflation and soaring rates on loans and mortgages, many consumers are turning to credit cards in a financial pinch. They're easy to qualify for and incredibly convenient to use.

Unfortunately, they can also hurt your credit — especially if you skip payments or wrack up too-high balances.

Find out what your top debt relief options are online now.

3 ways to settle your debt without hurting your credit score

Are you dealing with high credit card debt? Here's how to tackle it without hurting your credit further.

Choose a debt payoff method and stick to it

To start, make sure you're making payments that are larger than the minimum payments required by your card issuer. This reduces your principal balance and, in turn, your interest costs.

Create a household budget and see where you can cut corners. Then, put any extra cash you've found through those cutbacks to reduce your debts. Generally, financial professionals recommend putting at least 20% of your disposable income toward debts and savings each month.

If you have several credit cards with balances, "use either the debt snowball method — paying off the smallest debt first, or the debt avalanche method — paying off the highest-interest debt first, to systematically reduce your debt," says Kristy Kim, founder and CEO of TomoCredit.

The quicker you can get your balances to 30% or less of your total credit line, the better. According to credit bureau Experian, that's when your balances start to have a "pronounced negative effect" on your credit score.

Explore how the right debt relief company can help you tackle your high-rate debt now.

Consolidate your debt

Another option is to consolidate your debts — using another credit card or loan to pay them all off at once. This rolls them all into one loan and, as long as the new credit card or loan has a lower interest rate, can save you on long-term interest, too.

Opening the new card or loan will result in an initial hit to your credit score, but Howard Dvorkin, a certified public accountant and chairman of Debt.com, calls it "a classic case of taking a half-step backward to take two steps forward."

"Yes, in the very short term your credit score may drop, but if you make payments on time and in full, your score will soon rise," Dvorkin says. 

The key is to make sure you're paying the credit cards off with a lower-rate product. This might mean a personal loan or home equity loan (both tend to have lower rates than credit cards these days), or it could mean using a balance transfer card. In the case of the latter, these often come with promotional 0% interest rates for a period of time. You'll just need to make sure you pay off the balance or transfer it to a new card before that promo rate expires.

Additionally: Make sure you keep your old credit cards open once you pay them off — just don't use them.

"The average age of your open accounts is a factor in determining your score, so while closing a card may be tempting after consolidating your debt, it might be better to keep it open, especially if there is no annual fee," says Gabe Kahn, director of credit at Arro Finance. "If you're concerned that you'll use the newly available credit to continue spending, though, closing the card and taking a minor hit to your credit might be a good idea instead of ending up in debt again."

Get on a debt management plan

A debt management plan is also an option. These are available through credit counseling agencies and debt relief companies, and often result in reduced interest rates and waived late fees. 

You'll pay your credit counseling company monthly, and they'll work with your creditors to pay off your balances by a certain deadline (often within three to five years).

Dvorkin says these plans are similar to consolidation when it comes to your credit score.

"Your score might dip momentarily, but it comes back stronger than ever," Dvorkin says. "In both these cases, you're making on-time payments that lower your debt burden."

The bottom line

Whatever you do, stay on top of your payments. And if you think you may have trouble making them, call your credit card issuer for options.

"The worst debt strategy for your credit score is to consistently make late payments or miss payments entirely," Kim says. "Payment history is the most significant factor in determining your credit score."