Dig Yourself Out of Debt
It's very important to know your credit score. Once you start paying down your debt, your credit score will rise. A higher credit score means lower interest rates.
You can get one free report each year from each of the three credit bureaus—so three total. The smart thing to do is to get one every four months, that way you can make sure (for free) that you haven't been a victim of ID theft. To get a free report, go to the website set up by the Federal Trade Commission, annualcreditreport.com.
If you can't get a free report, buy one from one of the three credit-reporting agencies:
- Equifax: 888-766-0008 or equifax.com
- Experian: 888-397-3742 orexperian.com
- TransUnion: 800-680-7289 or transunion.com.
Uncle Sam second: If you have the money to pay your taxes immediately, the IRS will generally work with you to come up with a schedule of payments. By all means, though, file your taxes when they are due. Not filing can result in penalties and interest of up to 25 percent of what you owe.
Most student loans are backed by the government. That means that, like back taxes, the government is allowed to come after these loans in a way that other creditors aren't. If you're delinquent in paying your back taxes or student loans, the government can seize your tax refunds and garnish your wages and, in some cases, your Social Security benefits. Fortunately, the government also has a number of solutions for people who can't afford to make their student loan payments, including putting those loans on hold if you're out of work or stretching out (and thereby reducing) the amount owed.
Everything else third: All of your other debts—bank-card debt, department store debts, payments for furniture and appliances—are backburner debts. That doesn't mean you shouldn't pay them. You borrowed the money; of course, you should try to pay them. But if you're in a situation where you know that not every creditor is going to get paid, these are the ones you put on hold.
Another way to save money on credit cards is to reduce your interest rate. Go to a website likelowermybills.com or bankrate.com to look at competitive offers. Before you switch your debt to one of the low interest rate cards call your current credit card company and ask to have your rate lowered.
- Don't carry credit cards in your purse (only debit/ATM)
- Write checks, pay cash
- Turn down credit line increases
- Create specific funds for special occasions, like holiday presents, vacations, anniversaries, etc.
- Tell friends what you're trying to do to rally support
- Don't run up bills you can't pay in full at the end of the month
- Pay credit card bills on time to avoid late fees
- Make no more than one ATM visit a week
- Don't be seduced by credit card offers such as airline miles
Remember, fine-tuning your spending plan is a process. If the plan you put in place for one month doesn't work, it doesn't mean you should quit. It means you should continue to tweak the plan and figure out how to make it work to accomplish your goals. Plus, doing this exercise will inevitably make you more conscious of how you choose to spend your money and how motivated you are to pay down your debt.
You can go through your home and your possessions and see if there's anything of value to sell. Which could you part with if it meant financial security? Your boat? Second car? Second home? Time share? Art or jewelry? To get the most for whatever you're selling, you need to know what it's worth. If it's truly valuable (think $5,000 or more) you should have it appraised for your sake and for tax purposes. If it's a household item that's not worth having appraised, you can get an accurate idea of fair market value by seeing what similar items are selling for through classified advertisements or on eBay. If you find you have nothing big of value but lots of little things to sell, there's a solution as American as apple pie—a garage sale.
You can earn more money, either on your current job or—more likely—by taking on a second one. If it's been a year or more since you received a raise, it's time to ask for one. If you don't get it, ask your supervisor what you need to do to increase the size of your paycheck. You may need to get a second job. Eight and a half million Americans have already done so to meet regular household expenses or pay off debt, according to the Bureau of Labor Statistics. That's 4 out of 10 people! If you're already moonlighting and it's been a while since you raised your rates or raised your prices, do so today by 10%. That's the easiest way to pad your pocket.
And because what it really is, for lack of a better description, is a snapshot of your borrowing and bill-paying behavior over the previous 24 months, as time goes by you have the power to change it for the better.
35% of your score is based upon how well you pay your bills.
30% of your score is a measure of how much credit you have available to you and how much of that credit you're using.
10% is based on your search for new credit—how recently have you opened (or inquired about opening) new accounts?
10% is the composition of your file. What percentage of your file is bankcard debt and what percentage is installment debt?
15% is a measure of the length of your credit relationships. How long have you had the cards in your wallet?
Advice on raising your credit score