If you’ve found yourself in debt, there are a number of things you should start doing right away to take back control of your finances:

Don’t panic. No matter how deep in debt you may be, you must not panick, no matter how overwhelming it may seem. I have seen people $100 000 in debt get out of it. It takes time, but it is possible to get out of even the worst of debts. If you panick, thinking it’s impossible, you’ll only lose focus and you will have more difficulty in making those decisions which are absolutely crucial to getting out of debt.

Budget. This is one of the most basic steps to getting out of debt. Read the budgeting basics article here at The Penny Mine to get a solid overview of how exactly to create a budget to suit your lifestyle and which will help you get out of debt.

Get a Second Job. While this isn’t always an option for everybody, if you’ve got the time, a nights/weekend part-time job can help you cut into your debt very quickly. If you’re working for $10 an hour, even an extra 15 hours a week should net you around $400 per month after all of the deductions. For most people in debt, this can make an enormous difference.

Do Not Open More Cards. A lot of people, tempted by low introductory rates, tend to open as many credit cards as they can to consolidate debt. I strongly recommend against this, unless you know exactly what you’re doing. The reasons behind this are covered in parts 1 and parts 2 of the 0% intro rate trap. For most people, these introductory cards are a sham, and will cost you more money than they are worth. Stay away, no matter how tempting it may be.

Prioritize Your Debt Reduction. If you’ve got student loans of $20 000 at 5% interest and credit card debt of $10 000 at 20% interest, you’re much better off paying the smaller amount of credit card debt first, despite it having a smaller balance overall. Some people suggest the “snowball” method, which involves paying the smallest debt first and the largest debt last, regardless of interest rate. If you have problems paying debt and need the visual of having your debts disappear, the snowball method may be better for you. However, if you have the willpower to stick to your plan, always pay off the highest interest rate balance first.

By following these five simple steps you’re putting yourself right on your way to a debt-free lifestyle. Of course there is a lot of planning and thought which must go into being debt free, but these are the basic steps you need to follow to get onto a debt-free path.

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Last week I gave you a list of things that under FICO 08 can help increase your credit score. There’s also a number of things that can hurt your credit score significantly more, however. You need to make sure NOW that under FICO 08 your score won’t drop. Here are a few things that many of us do today which will result in a lower score under FICO 08. For the sake of your credit score, do your best to avoid the following:

• Making late payments. In the past, one late payment could lower your score 100 points. Now, one late payment won’t hurt you as much, but regularly missing payments will hurt your score more. Do your best to make as many payments as you possibly can on time, or you will see a drop in your score.
• Using most of your available credit. Using more of your available credit will do more harm to your credit under the new system. Now that under FICO 08 your score will be hurt less by applying for credit, a good way to avoid this is to try and get some new credit. This will increase your available credit and prevent your score from dropping because you’ve used too much of your available credit.
• Getting fined. This isn’t really related to FICO 08 directly, but having parking tickets and other fines show up on credit reports is becoming increasingly common. Pay your fines on time before you see them on your report!
• Closing your credit cards. Even if you cut them up, don’t close the accounts. Having open accounts will prevent your score from dropping as it shows you have available credit, and it increases the length of your credit history. Using old cards from time to time is important under FICO 08, but you definitely should not close them!
• Only use credit cards. You need to have both revolving and fixed credit (ie. a car loan) to be seen as being diversified under FICO 08. If all you have credit-wise is cards, your score will suffer.

By avoiding the above mistakes, you can be ahead of the curve of FICO 08 and keep your credit score from falling under the new system. Be proactive when it comes to your credit - take care now to make sure that when your score is based on FICO 08 your credit rating won’t drop a few levels.

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Thanks to the virtual meltdown of the financial sector in the United States, credit issuance is likely to become a much stricter industry, especially in the United States. Many people have found themselves with a low credit score, and considering the changes in the formula for determining FICO scores, some of the things you do can hurt or improve your score. Here are some of the actions you can take which may alter your FICO score compared to how it was calculated in the past:

• Applying for new credit may hurt your score less
• Using the accounts you have on a regular basis may increase your score
•  Carrying a high balance on your cards may hurt your score more

Some of the major changes include authorized users on cards no longer being able to “piggyback” the credit rating of someone with good credit. Single infractions are now going to have less of an impact on a credit score reduction as well. If you paid a bill late even once your score used to drop by as much as 100 points. Now, the focus is more on whether or not you make regular payments on time, and single infractions no longer have the devastating effect they used to on your credit.

With this new information, I’ve compiled a list of 5 things you can do this year to improve your credit score, taking advantage of these new rules:

1. Watch your limits. Try not to use more than 30% of your available credit and if you can use less than 10% that is even better. The higher your balance, the more your FICO score will be negatively impacted. The credit bureaus don’t distinguish between the balances which you pay off each month and those you carry. If you carry high balances but pay them off every month, consider asking for a credit limit increase to reduce the amount of available credit which you are using.
2. Don’t close your accounts. It’s well known that having open yet inactive accounts is better than closed ones. With these new rules, having open accounts in good standing will help increase your score even more than in the past, while too many closed accounts will hurt it.
3. Keep your accounts active. The FICO score is now recognizing when you leave your cards at a zero balance, so it’s best to make a couple of small purchases on your cards every month and then paying them off when you receive your statement. Cards which have carried a zero balance for a long period of time are going to start having a reduced impact on your score, so you want to keep them at least somewhat active.
4. Mix things up a little bit: FICO scores are now taking into account your mix of revolving credit, which allows you to take money out and pay back at will, such as credit cards and lines of credit, as well as installment loans where you can only pay back the amount (such as mortgages and car loans). Your mix of credit types will become much more important in 2008, and if you’re trying to increase your score a good way to do this is by ensuring you have a mix of these two types of loans. However, be sure not to get extra credit if you cannot afford it: it’s better to have your credit score be average because you didn’t get that extra loan than poor because you got the loan and couldn’t afford to repay it.
5. Pay your bills on time. While a single late payment won’t have the impact it used to on your credit, a bad track record for payments will have a much larger impact on your credit score. Make one mistake and you’ll be fine, but make many and you’ll be worse off than you were before!

If you’re looking to increase your credit score, using these techniques to take advantage of the new system is one of your best options. Keeping up to date with FICO formula changes helps ensure that you know what’s important when it comes to your credit.

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When you speak with a financial advisor about your debt, most will recommend that it be paid off in a specific order: the highest interest rate to lowest interest rate. This obviously makes sense, as the debt which you are paying back the most on will be gone as quickly as possible. Assume you are in the following debt:

• Student loan of $15 000 at 6% interest
• Credit card debt of $9 000 at 19% interest
• Line of credit with a $2 000 balance at 11% interest
• Car loan of $6 000 at 5% interest.

Yes, you would be saving the most money by paying the credit card, then the line of credit, then the student loan and finally the car loan. This system works wonders with the people who have the self-discipline to stick to such a system and eliminates the debt as quickly as possible.

However, a large number of people don’t have the self-discipline to pay off this debt in this manner simply due to the fact that when you’re paying off a large debt, it looks like you’re making virtually no progress. The credit card debt in the above example is the debt at the highest interest rate, which would be best to pay off first, mathematically.

However, when you look at the numbers, $9 000 and $7 000 are still two enormous numbers. Psychologically, paying off the credit cards first is the most difficult as progress is much more difficult to physically get a grasp of.

This is when the system recommended by Dave Ramsey in the book The Total Money Makeover comes in: he recommends organizing the debt, not according to interest rate but according to total balance:

• $2 000 line of credit at 11%
• $6 000 car loan at 5%
• $9 000 credit card debt at 19%
• $15 000 student loan at 6%

Dave’s recommendation is to pay the minimum payments on all of the debts, but to put every extra dollar you can gather towards the smallest debt, the line of credit. Once the line of credit is paid off, move onto the car loan. Mentally, you’ll feel as though you’re making much more progress than you would if you were paying the credit card debt off first. This method of debt elimination is known as the snowball method.

You will end up paying more interest if you do this method as opposed to the traditional method to eliminate your debt. However, if you’re the type of person who is likely to give up paying your debt entirely if you can’t physically see results, this is definitely a better option. You may pay slightly more, but you will end up paying off your debt entirely, which is the end goal.

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