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Get out of debt with the Lending Ladder

Getting out of debt is tough. You might feel like your stuck in a cycle of high-interest rates. Maybe you feel like you’re drowning in bills and can’t seem to find a way out. In this article, I’m sharing with you a strategy called “The Lending Ladder” that can help you get out of debt faster if you currently have less-than-perfect credit. 

Step 1: Get a loan you can qualify for

The first step in the Lending Ladder is to get a loan that you can qualify for, even if the interest rate is higher than you’d like it to be. Don’t worry; this is just a starting point. The goal is to establish a track record of on-time payments, which is crucial for improving your credit score. But make sure that you lender reports to all three major credit bureaus (Transunion, Experian, and Equifax).

Step 2: Make on-time payments for at least four months

Once you have your loan, make sure to make your payments on time for at least four months. Depending on your credit history and your utilization, it could take a little less time or a little more. During this time, you have to stay current on all your other obligations, like rent, utilities, and other debts. Consistency is key here, as on-time payments are the most important factor in building and maintaining a good credit score.

Step 3: Monitor your credit score

After making on-time payments for four months or more, check your credit score. If you’ve been diligent about paying on time and managing your other debts responsibly, you could see an improvement of at least 40 points. A 40 point improvement to your credit score moves you up a credit bracket. This gives you access to lower cost credit options. This increase in your credit score is your ticket to the next step in the Lending Ladder.

Step 4: Apply for a loan with a better interest rate

With your improved credit score, you can now apply for a loan with a better interest rate. Shop around and compare offers from different lenders to find the best deal. When you secure a loan with a lower interest rate, keep making the same monthly payments you were making on your previous loan.

This is easy to do on our marketplace page at The Yukon Project. Apply to any one of our premium lenders and we will check your rate with up to 40 lenders. Applying won’t hurt your credit score, so you can check it whenever your credit score has improved. 

Step 5: Accelerate your debt payoff

By maintaining the same monthly payment on your new loan with a lower interest rate, more of your payment will go toward the principal balance. This acceleration in principal reduction will help you get out of debt faster and save you money on interest charges in the long run. It can also help you decrease your revolving credit utilization which will always put upward pressure on your credit score. 

Step 6: Repeat the process

Keep climbing the Lending Ladder by repeating steps 3-5. As your credit score continues to improve, you’ll qualify for even better interest rates, allowing you to pay off your debt more quickly with each new loan.

I have one caveat to mention. Using the lending ladder will lower your average age of credit and your age of newest credit account. These two factors can put downward pressure on your credit scores. That’s why lengthening your on-time payment streak and lowering your utilization is so important. Those factors are significantly more important. If you can do them, your score should improve.

Summing up the Lending Ladder & getting out of debt with bad credit

Lenders may not want you to know about the Lending Ladder because they’d prefer to keep you as a customer, paying high-interest rates for the life of your loan. But your priority should be to pay less in interest and get out of debt as quickly as possible. By following the steps of the Lending Ladder and consistently making on-time payments, you can take control of your financial future and achieve your goal of becoming debt-free.

Remember, the Lending Ladder is a powerful strategy, but it requires discipline and dedication. Stay focused on your goal, and don’t let temporary setbacks discourage you. With persistence and smart financial management, you can climb your way to financial freedom.

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Jonathan Walker