Paying Down Debt: The Right and Wrong Ways to Do It SPONSORSHIP

The Federal Reserve recently announced that consumer debt dropped by 2.4 percent in the first quarter of this year, the seventh straight quarterly decline. With the amount of consumer debt shrinking, many home buyers are revisiting their credit scores, and trying to find ways to boost them.

A score of 740 or above is considered optimal, while scores below 680 will cost you a lot more in interest in fees, and could even put you in danger of not qualifying for a loan. When it comes time to purchase a home or refinance, the better your score, the more you will save.

It's a step in the right direction, says Todd Huettner, president of Huettner Capital, in Denver, Colo., as people look to get back in the black and improve their finances. "There is no doubt that people are looking to pay down their debt," he says, "and, when they can, get rid of it altogether."

But paying off debt, if not done right, can actually hurt your credit rating.