There are many ways to get ahead financially. You can go to seminars where hundreds of other people cut up their credit cards with you, use debt consolidation services that help you get a home equity loan or refinance your home, or move debt from one credit card to another with a 0% introductory rate (which goes up to 12 percent six months down the road). The reason these strategies don't work is that we don't cut costs at the same time we use them. Even if we make more money, we will continue to spend more than we have and go into debt if we don't cut costs. Take care of yourself and your finances. Just like we don't only eat when we're hungry, we don't only spend money when we need something.
Be careful: Forgiving your debts can hurt you. The company that cancels your debt can give you a 1099C. This means that the amount that was canceled is added to your taxable income.
If you want to do something, there's always a way:
The interest rate you can get will depend on your credit score, which is also called your FICO score or your Beacon score. Scores can be anywhere from 500 to 850. How do you measure up?
How do you measure up?
What does a number mean?
- 500, you're in serious trouble.
- 650 to 680 you might have a hard time getting credit, and if you do, the rates will be higher.
- 700+—an excellent score
Your credit score and how you got it:
- History of payments (35 percent of score). Pay on time or ahead of time.
- How much you owe (30 percent of score)
- History of credit (15 percent of score). Your score can go up the longer you have credit.
- A new credit card (10 percent of score). There are new credit cards.
- The kind of credit you're using. Mortgages, Bloomingdale's, etc.
There are three reporting services, Equifax.com, Experian.com, and Transunion.com, that can tell you your score. Do an experiment and order a report from all three at least once. They probably will give each person a free report once a year. You will probably find things that don't make sense in the reports, like information that is missing or wrong. Every time someone checks your credit report, your score goes down by two or three points. You should still look around for a mortgage, but you might want to use a mortgage broker who can shop around the loan by running one report. If you go to five different banks, your score could go down by 15 points.
