Personal Finances

What should you do now to turn things around - to start getting out of debt? According to many experts, you need to take two steps:

1. Cut up your credit cards and start living on a cash-only basis.
2. Do whatever you can to bring down your monthly bills.

Step 1 in this abbreviated two-step personal-finances "plan" is probably the easier of the two, but taking even this step can be hard enough. In fact, a lot of people would find it painful to give up their credit cards, and there's a perfectly logical reason for their reluctance: the degree of pain that one would suffer from destroying one's credit cards probably stands in direct proportion to one's reliance on them.

As of May 2011, total credit card debt in the United States is about $780 billion, out of $2.5 trillion in total consumer debt. Closer to home, one recent report puts average credit card debt per U.S. household at $16,000 (up 100 percent since 2000). The 600 million credit cards held by U.S. consumers carry an average interest rate on these cards of 15 percent". Why are these numbers important? Primarily because, on average, too many consumers have debt that they simply can't handle. "Credit card debt," says one expert on the problem, "is clobbering millions of Americans like a wrecking ball," and if you're like most of us, you'd probably like to know whether your personal-finances habits are setting you up to become one of the clobbered.

If, for example, you're worried that your credit card debt may be overextended, the American Bankers Association suggests that you ask yourself a few questions:Joshua Lipton,

• Do I pay only the minimum month after month?
• Do I run out of cash all the time?
• Am I late on critical payments like my rent or my mortgage?
• Am I taking longer and longer to pay off my balance(s)?
• Do I borrow from one credit card to pay another?

If such habits as these have helped you dig yourself into a hole that's steadily getting deeper and steeper, experts recommend that you take three steps as quickly as possible:

1. Get to know the enemy. You may not want to know, but you should collect all your financial statements and figure out exactly how much credit card debt you've piled up.
2. Don't compound the problem with late fees. List each card, along with interest rates, monthly minimums, and due dates. Bear in mind that paying late fees is the same thing as tossing what money you have left out the window.
3. Now cut up your credit cards (or at least stop using them). Pay cash for everyday expenses, and remember: swiping a piece of plastic is one thing (a little too easy), while giving up your hard-earned cash is another (a little harder).

And, if you find you're unable to pay your debts, don't hide from the problem, as it will not go away. Call your lenders and explain the situation. They should be willing to work with you in setting up a payment plan. If you need additional help, contact a nonprofit credit assistance group such as the National Foundation for Credit Counseling (http://www.nfcc.org).