Get Motivated

First, you have to find the leverage in yourself to get out of debt. It isn’t enough to say you want to get out of debt for the sake of being debt free. If this is your only motivation, you will be in debt again finding your place at the starting point. You have to dig deep in your soul and understand that debt is hindering your ability to be financially free. High interest debt is a subtle (or not so subtle) way of telling you that you may be in fact living beyond your means. Take this as a challenge and an opportunity to change your life.

FICO

Your FICO score determines a lot of things including your interest rate. You can easily obtain your FICO score from www.myfico.com – scores range from 300 to 850 with the higher the better being the case. No need in getting all 3 scores from the 3 various reporting agencies. One will suffice. The score is derived from multiple sources including your debt ratios, payment history, and length of credit. One misconception is closing down credit cards helps your credit score. It does not because it increases your debt utilization. If you feel the score is too low, you can obtain a free credit report typically once a year at Annual Credit Repot.

If you have a high FICO score and are paying a high interest rate, make it a point to transfer your balances to lower interest credit cards. You may have two options here. Now with credit being tighter, you will find many of the 12 month zero interest offers gone. But there are many with a good credit score where you can get 4 to 5 percent fixed for a period of time until you pay off the balance. Make it a must to payoff that debt.

My Credit Is Bad

Okay, so you say that your FICO score isn’t so hot. Now what? Well there are a few places online that you can go and try to get a loan from a peer to peer loan network. One of these places is Prosper.com. These places allow potential lenders the ability to bid on personal cases and offer loans at competing rates. You put your loan up for bid auction style and after a week normally, if you had set a competitive rate, you will have your loan filled. Below are a few lender rates on Prosper:

The good thing about Prosper is the note is payable in 3 years completely amortized with simple interest. The benefit of this is that it forces you to pay off your debt quickly even if your rate is higher. Unlike a 24 percent loan with a credit card, a 24 percent loan on Prosper includes the principal and interest and usually you are paying a large piece toward the principal. Chances are that you will get a much lower rate however if you have okay to poor credit here compared to industry credit cards. Your payment is automatically taken from your checking account so there is no need to worry.

Getting out of debt should be a priority for the new year and there are many ways you can save money by getting rid of that albatross.

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