A "Get out of Debt" checklist

Six tips to help you get out of debt

All too often, people are too ashamed or embarrassed to seek help with debt, so they try to deny or ignore the problem. But the longer they wait, the more the debt can pile up. These are some of the signs that debt has become a major problem for you:

• You can only afford to pay the minimum amount due on your credit card bills.
• You frequently have to use credit instead of cash.
• You’ve maxed out your credit cards.
• You do not know the full amount of your debt.
• You’ve been unable to refinance a mortgage because of lack of equity or poor credit.
• You’ve skipped paying some of your bills, or paid late.
• You’ve spent all your savings and have nothing for emergencies.
• Bill collectors have started calling.

How to reduce your debt:

1. Get motivated. Imagine being debt-free. If your debts were paid off, you could:

• Have more money available in your budget each month.
• Stop worrying about how to meet all your payments.
• Save more for retirement, education or emergencies.
• Enjoy some peace of mind.

2. Review your budget. If you’ve never used a budget to manage your money, this is the time to start:

• Track your spending to see where the money goes.
• Make as tight a budget as you can and stick to it.
• Find out how much you can afford to spend each month on reducing your total debt.

3. Make a plan. Once you know how much you have available, use it effectively:

• Pay more than your minimum payments. Even a little more each month can help reduce debt faster.
• Pay balances with the highest interest rate first — you’ll save money overall.
• Don’t be afraid to get professional help — but avoid scams. (See Credit Counseling.)

4. Stop adding to your debt. It’s the only way to start reducing the total:

• Talk to your creditors — they may have options to help you make your payments and start reducing your debt. They may even be able to reduce your interest rate, which will reduce the overall amount you have to pay.
• Stop using credit cards for non-essential purchases — learn to say “no” when you don’t have available cash.
• Consider a consolidation loan — but only if you can save on interest and avoid getting into more debt.

5. Cut back on expenses. You’ll have more available to pay down debt:

• Be a smarter shopper — learn to love discount stores, wholesale clubs and coupons.
• Learn to negotiate — not every price is set in stone.
• Save money with barter — trade your talents for goods or services.
• Cut back on restaurants and other entertainment.

6. Find more money. Be creative:

• Hold a yard sale, get a part-time job — consider what you can do to come up with more money to pay off your debt.
• Use unexpected money such as gifts or tax refunds to pay down your debt.

When you don’t want to go it alone.
There’s nothing wrong with asking for help. If you can’t manage to deal with debt on your own, consult an accredited credit counseling agency. Some good resources are:

• The National Foundation for Credit Counseling (online at www.nfcc.org, or by phone at 1.800.388.2227)
• The Association of Independent Consumer Credit Counseling Agencies (online at www.aicca.org, or by phone at 1.866.703.8787)

Your credit card company — they can often recommend someone they know is reputable.
See Credit Counseling for more information.

Enjoy the benefits of managing your debt.
Paying your debts off completely can be a great relief. But what’s next? So many situations today are easier to handle when you use credit, whether you’re buying a home, buying a car, paying for education or dealing with emergencies.

The trick is to manage debt so that payments are always well within your means. In the future, aim to keep debt payments (other than rent or mortgage) at no more than 20% of your monthly income. Then you can enjoy the advantages and flexibility of credit — without the worry.

What's next? Credit counseling: How to find help when you need it