Money Conscious Cruising

Recently I returned from my honeymoon cruise with some hard learned lessons on how to keep your money safe from not only thieves, but from yourself. One is to have a budget (and stick to it!), the other is to be extra vigilant when it comes to identity theft. As most people know, vacationing travelers are like walking bull’s-eyes to fraudsters. Follow these tips and you’ll have smooth sailing when it comes to your bank account.

Cruising is a unique vacation experience, as anyone who has been on one can tell you. Let me give you a quick rundown on how it works, and I’m sure you’ll see where budgeting can get tricky.

Your Room Card is Your Credit Card
The first thing that most people don’t realize is that there is no such thing as cash on a cruise ship. Nor is there anywhere that you can use your debit or credit card. That little room card you are issued when you get on board does a lot more than open your cabin. It is encoded with your personal information, as well as the credit card you used to book your cruise. Paid for your cruise in cash? Doesn’t matter. Before you board you’re asked for one anyway, as this will be your onboard account. All charges, from ordering a drink to paying for a massage will go to this card.

Obviously this is where things can get sticky. After a day or two of simply signing receipts, you start to disassociate the fact that all those charges are being transferred to the credit card you gave them in the beginning. Once the cruise is over, your on board account is tallied up and charged to your credit card. The front desk on the ship keeps a running statement of all your charges, so feel free to ask for a copy each day to see where you are in terms of your budget. If anything looks suspicious or unusual, ask the staff to produce the signed receipt for the purchase.

Use Your Credit Card On Shore
Something that you should do in any unfamiliar situation, but absolutely when you’re traveling is to use your credit card for purchases. For reasons mentioned in other articles, credit cards are much more secure and safe than debit cards or cash. While traveler’s checks are the old standby for vacationers, they are being accepted less and less due to fraud surrounding them. The alternative traveler’s check-card is nothing more than a pre-paid debit card, and easily compromised. A credit card doesn’t link to your money directly like a debit card does, and it gives you plenty of time to dispute any issues. If something does happen, and your credit card is overdrawn or disabled, you still can have your debit card as a backup if you need cash.

Balance The Books
If you’re using the same credit card on shore that you used to open your on-board account, be sure to keep track of your on shore purchases and add them to your statement from the ship. Some might see their statement from the ship and think that they are within their budget, when in fact they forgot about all the charges they had at their destinations.

Dealing With Old Debts

There’s a statue of limitations on debts. At some point, each state tells creditors to give up and go home — how long that takes varies from state to state. That statue of limitations can make it seem like a good idea to just forget about your older debts.

But if you’re working on getting your financial house in order, simply ignoring old debts may not be in your best interest. Sure, eventually they’ll pass the statue of limitations. But this tactic holds plenty of danger for your finances. Up until the day that your debt expires, your creditors have rights of their own. They can continue to try to collect on your debt — including taking you to court over the matter. And some creditors are willing to take more extreme measures the closer you get to the statue of limitations. Remember, a court case is always more expensive than just paying up would be.

More importantly, in the long run, just because the statue of limitations is getting close for a particular debt doesn’t mean that it drops off your credit report. Even when your creditors can no longer collect, you look like a bad credit risk. Perhaps you ignored an old debt to pay off more current bills faster. Your more recent credit could look great, if not for that old debt dragging you down. If you’ve got big plans, getting rid of that old debt is crucial. It always looks better for your credit history to show that a debt was paid off. Negotiating some sort of settlement still looks better than entirely ignoring it, though.

There’s even a psychological reason to pay off old debts, in my opinion. It takes a certain mindset to get into debt. As you rebuild your finances, you’ve over come that mindset and focused on more positive things in your life. But having old debt hanging there in the background can lead some people back to that old mindset: they think, ‘Hey, I got away with it before. There are plenty of ways out if I want to go back to that lifestyle.’ But knowing you stood up and took care of that debt can positively reinforce your new approach to money.

I advise thinking long and hard before writing a debt off as ‘too old.’ In the long run, it’s worth your while to make the effort to pay it off. It may seem overwhelming, on top of your other bills. If a debt is that old, though, your creditor may be willing to make a deal. He may be willing to settle for far less that what you actually owe — perhaps just the actual amount you originally charged rather than all the accumulated interest. Or perhaps he’ll accept small payments over the course of time. You won’t know until you actually contact your creditor and offer to work things out.

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Is It Time to Downsize? 3 Questions to Ask Yourself

GM is downsizing, reducing the number of cars they’re making and the number of employees they have on staff. Even GM’s executives are considering taking a pay cut. Plenty of other businesses are also considering downsizing, or have even started the process.

With big corporations reducing costs, we have to wonder if maybe we should be doing the same. Sure, most of us don’t need to worry about a big corporate bottom line, but we do have to worry about things beyond paying the bills: are we saving enough? will we have enough for retirement? can we cover the costs of an emergency?

It can be hard to bring balance to our spending, especially as the cost of everything seems to be rising. And for some of us, the best option can be downsizing — reducing our needs in order to reduce our costs. Downsizing in your personal life can go from the extreme (selling your house and moving into a smaller residence) to the fairly mild (buying generic rather than brand name). Personally, I’ve eliminated a few luxuries in favor of less expensive pleasures. For instance, rather than rely on expensive cable for my needs, I use Netflix. I don’t really watch enough TV beyond Netflix to justify cable.

Deciding when to downsize isn’t difficult: there are three questions you can ask yourself that can make it clear if it’s time.

1. How’s my spending? Breaking even isn’t good enough. As long as your spending leaves plenty of room for savings, you’re okay. But if you’re only saving a few dollars from each paycheck, it’s time to cut costs.
2. Can I live without it for a week or longer? Think about your expenses (especially those that are reoccurring) in terms of the utility you get out of them. Maybe you’ve started taking more public transportation because of the cost of gas. Maybe you wouldn’t miss your car — or the loan payments, insurance and maintenance costs — if you sold it.
3. Is stuff cluttering up my life? Stuff — clothes, books, whatever — costs money even if you bought it. You have to store it, and it takes up space that better stuff can use. Getting rid of stuff that you don’t want or use can be a beneficial form of downsizing — you can cut your tax bill if you donate it or make money off it if you sell it.

There are other ways to deal with rising bills, of course. If you truly don’t want to cut your costs, or you feel you can’t, you can take another approach. Make more money. Downsizing is generally easier — you don’t have to commit your time long-term to the project. But making the effort to earn more money can counteract rising gas and food bills, at least for now.

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When To Use A HELOC, And Why

Home Equity Lines of Credit (HELOC) are sometimes referred to as ‘second mortgages,’ but this isn’t necessarily true. These loans act much the same as a credit card. HELOCs are lines of credit with a dollar limit (determined by your homes worth and how much of it you own) which you can draw from whenever you want, and for any amount you want (there are some limitations, but let’s keep it general for now). Usually these loans are used for home improvements or other costly maintenance, but there really are no rules on how to use the money, as long as you make your monthly payments. Let’s take a look at some reasons for taking out and using a HELOC.

Don’t Move, Improve!
Several homeowners are turning to large renovations on their existing homes rather than moving to a new one. With the market in the state it’s in, selling your home is no longer a smart option. If you purchased your home in recent years, it’s very likely that if you sold it today you would be losing money. Therefore people are using the equity in their homes to renovate and make them better. Between additions, upgrades, and remodels, people are essentially building a new home from their old one, instead of dealing with the hassle of buying and selling. There’s another reason people are putting down the ‘for sale’ sign and picking up a hammer; renovations build value. The more updated and expanded your home is, the more its value increases. So a few years down the road when you do sell, you’ll make more in profit than you spent on renovation.

Money For The Lean Months
If you’re a seasonal worker or are self employed, a HELOC may be the way to make sure you don’t starve during your off months. Perhaps you have a landscaping business that is very productive and employs many people. But every year when the snowy season comes, plowing roads just doesn’t pay the bills. Not to mention you don’t want to lose all your employees because you can’t pay them as much as they earned during the summer. If you use money from a home equity loan to bolster your accounts during those times, and pay it back during your busy months, you can even out your expenses and maintain a steady flow of cash all year.

Make Credit Cards Go Away
High interest credit cards can be the thorn in your side that just won’t go away. With a HELOC, you can pay off your credit card and essentially ‘transfer’ the balance to your new loan. The interest on home equity loans is significantly less than many credit cards. Average rates for high interest cards can be anywhere from 20% to 30%, while HELOCs are currently between 4% and 6%. A scenario (warning, math ahead!):

Say you have a $15,000 balance on a 20% credit card, and planned on paying it off in 5 years. If you paid off that card with a 5% home equity loan, and paid it down within the same 5 years, you’d save $6,860.40 in interest! Not to mention going from a monthly payment of $397.41 to a much more manageable $283.07. Sounds good to me!

7 Obvious (and Not So Obvious) Ways to Boost Credit

You know all the ways you can hurt your credit score, but do you know all the best ways to give your three-digit score a boost? There’s lots of tips and tricks out there, so I looked for the best, reliable strategies to help you out. Read on for my top seven ways you can increase your credit score.

1. Pay Down Your Cards and Spread Out Your Debt - Are you thinking “duh!” right about now? It’s true that you just need to pay down your credit cards and focus on the cards where you are closest to your limit. MSN personal finance columnist Liz Pulliam Weston says that “getting your balances below 30% of the credit limit on each card can really help.” Credit scores look at how much available credit you have vs. how much credit you’re currently using (credit utilization ratio). Points are deducted when you’ve charged over 50% of your limit.
2. Ask For Credit Limit Increases - Make a phone call to the card companies that you’re in good standing with. Ask for an increase. If they agree, you’ll immediately boost the credit utilization ratio and see a jump in your score.
3. Occasionally Use Old Cards - As you know, credit history gets better with age. But you need to continue using your old cards or the companies may stop updating your accounts with the credit bureaus. You want your accounts to stay active. Charge a small item on an old card every now and then and pay it off in full once you get your next statement.
4. Ask For Forgiveness - If you have just one pesky late payment on a card, call or write your lender and ask them if they can erase it from your history. You have a good chance if you make the request in writing and if you’ve had 12 or more on-time payments since the late one.
5. Verify Your Credit Limits - Check to make sure the credit bureaus accurately list the credit limits you have for each account. If you find any errors, call the bureau and ask them to correct it.
6. Do NOT Close Your Cards - You always want to have a high amount of available credit, so closing your cards can hurt you instead of help you. Pack the cards away in a safe place, out of sight, if you need to.
7. Pay Your Bills On Time and Above The Minimum - This is an easy tip, but it’s always good to remember. An easy way to never forget your payments is to set up automatic deductions or have your bank pay your bills for you. You can also set aside a time every week to look at upcoming bills in a spreadsheet that you securely saved online. This way, you can check on your bills from wherever you are.

Same Loan, Different Rates

A new and disturbing trend is starting to ripple through the banking world, one that changed the airline and retail industries over thirty years ago. In the face of huge drops in profit from the now infamous sub-prime mortgage debacle, banks are looking to find any way possible to recoup those losses, and they want to do it fast. Their answer: price optimization.

In other words, charging different prices for the same product. While this isn’t a new idea in general, its application to the banking world is less than a year old. Airlines charge different rates to the same destination based on the time of year (ever try getting a flight around the holidays?) and retail shifts their prices based on how new or how popular a product is. Now banks are looking to charge different rates of interest on their loans, based upon the customer.

But it’s not going to work like you think. In the past, the more relationships you had with a bank (checking accounts, savings accounts, etc) the more perks you got. Perhaps it was a better interest rate on a CD or no fees on an account. With price optimization, the more relationships you have (and indeed, the more money you have in general) the higher your interest rate will be. Why? Because banks want money, and the need it fast. Here’s a scenario:

A 31 year old professional walks into his local bank branch and expects to get a very good rate on a loan. After all, he has an extremely good credit score (785), and is willing to make a 20% down payment on a new four bedroom home. He walks out with an offer of 6.5%, not even close to the industry norm of 5.8%. If he goes with them, he could end up paying over $21,000 more over the life of the loan.

Essentially the banks are looking to eek out as much interest revenue as possible in the shortest amount of time possible. Therefore the more money you have the higher interest rate you’re able to pay. There are many other factors that play into it as well (up to 20,000 in some models). Computer software takes your information and after running it through filters and projection models, determines how much you would be willing to pay. Live in the Midwest? You’re more likely to eat a higher rate than someone in New York. Applying at a local branch? You’re more likely to take a higher rate than a phone or internet application. Are you a lifetime customer who doesn’t have accounts anywhere else? You’re going to get hit just as bad as an uneducated consumer with a low credit score.

The lesson here is to be aware. There is nothing that says you have to take these higher rate offers. Shop around, do some research, make some calls. Essentially the banks are hoping that you don’t do these things, and take their word for granted. The best thing you can do is arm yourself with knowledge and challenge your bank to give you a better rate. If they don’t, then move on to one that does. Industry consultants say that eventually this approach will phase itself out, that once people start looking around for better rates the computer software will start spitting out lower rates to compete. However for the short term, banks are looking to squeeze every dime out of you they can. Don’t let them! Take matters into your own hands and become an educated consumer. Now, if we could only do something about airline rates…

Setting Reasonable Goals

One of the main reasons people have a hard time overcoming their debt is that they set unrealistic goals for themselves. Then, when meeting those goals is harder than expected (or nearly impossible), they get frustrated and all but give up. If you really want to pay down your debt, you need to learn to set reasonable goals for yourself.

Many people say that they want to pay off their debt in less than five years. This is a noble goal, but take a look at the total amount of debt you owe and compare it to your income. Do you make enough money to pay off your debt and live reasonably with that time frame in mind? It’s one thing to say you’ll live off of top ramen and water to save money and pay off your debt, but after a few months of a ramen and water diet, you’ll probably re-think your five year plan.

One of the easiest ways to set reasonable goals for yourself is to take your larger, loftier goals and break them down into smaller projects. These smaller projects will be easier to tackle which will help to ease the overwhelming pressure that often accompanies a larger goal like becoming debt free as soon as possible. It also helps give you a sense of satisfaction because you will be able to see that real progress is being made!

Let’s say that your larger goal is to become debt free (we won’t worry about a time frame right now as everyone’s debt is different). What are the steps you should be taking?

By now you should have a budget in place with a tentative payment plan in place. This makes you a few steps ahead of those who have merely said “I will get out of debt soon.” It means you have taken some active steps toward your goal of being debt free.

What should your next goal be? Being debt-free is a noble goal, but part of setting reasonable goals for yourself is figuring out the steps you need to take to realize those goals.

Perhaps you should figure out a “pay off” order with your bills. Decide which bills need to be paid off first, second, etc. This way you can work through your debt systematically instead of just making payments on everything and hoping that the overall total eventually goes down.

Now what? You have a budget, you have a payment plan, you have an order of accomplishment on your bills… what else can you do? What can you do by the end of the day to put money toward your debt? What can you accomplish in a week?

Setting reasonable goals is far more effective than simply sitting under the umbrella of a large and overwhelming goal. Reasonable goals give you results you can see (almost) immediately and they will give you active steps to take which helps to provide you with incentive to keep working toward your own, personal finish line.

Down is Good

This might sound obvious, but did you know that one of the best ways to reduce your debt is to simply not add to it? It is amazing how many people agonize over their debt and continue to use their credit cards and take out loans! Sure, using a credit card and paying it off every month can be a fabulous way to raise your credit score butI’m going to guess that if you are scared of your debt then you aren’t exactly in a place where you can pay off your credit card every month.

Here are a few quick ways to make sure that you don’t add to your debt.

1. Take the credit cards out of your wallet. One woman I know was so serious about not using her credit cards until they had been completely paid each of her credit cards in a Ziploc bag full of water and then stored those bags in the freezer. I’m not saying that you have to be that extreme, but you are far less likely to buckle under impulse buying pressure if your credit cards are at home.

2. Only buy something if you have the cash on hand to pay for it. There is nothing wrong with buying something small if you already have the cash in your wallet—as long as that cash isn’t earmarked for something else.

3. Consolidate wherever possible. Is it possible to pay off two smaller debts with high interest by using a third credit account that has a lower interest rate? This won’t necessarily get rid of that debt, but it will keep it from growing quickly. If you own two cars, consider selling one car and sharing the second. Use the money from the sale of the car to pay down your debt!

4. Shop only when you need to. There are tons of people who like to simply “go shopping.” It’s a hobby instead of a necessity. If this is you, find a different hobby! There are plenty of things to do that do not involve spending money (or involve a very small amount of money)! Hobby shopping is one of the easiest ways to rack up debt.

The basic idea is this: when you keep spending money or taking out loans, you aren’t going to reduce your debt. You are simply going to keep it in limbo—especially if you add the same amount to your credit cards that you pay on them each month. Paying cash, consolidating your expenses and shopping only as a necessity are great ways to keep your debt going in the right direction: down. When it comes to debt? Down is good.

Major Debt Reduction Myths

A little more than a week ago, I wrote about creating your (dreaded) budget. By now you have probably come up with a figure that is, well, less than pleasant.

If people know that you’ve decided to get serious about reducing your debt, you’ve probably been given all sorts of advice. Some of the advice is easy to follow. Other advice feels sketchy at best. For your Monday, I thought it would be a good idea to take a look at a couple of the major debt reduction myths and why you shouldn’t follow them.

Debt Myth #1: Employ a Debt Consolidation Company

Many people advocate going through a debt consolidation company and, if you feel like your debt has spiraled completely out of control, you might benefit from one of these services. It is easier to pay one bill each month and some debt consolidation companies are quite good at getting your creditors to reduce the amount you owe.

The problem is this: even if the consolidation company can talk your creditors down to a reasonable number, this number is often offset by the amount of money you will pay in company processing fees. What’s more, the consolidation companies advocate closing all of your credit accounts. While having many credit accounts isn’t a good idea, you will need at least one active credit card to use for things like hotels, car rentals, or emergency funding. Another problem with debt consolidation companies is that it could end up putting a black mark on your credit record. You want to avoid being labeled a credit risk.

Debt Myth #2: Pay off the card with the highest interest rate or pay off your largest debts first.

There is a simple logic behind this myth. The account with the highest interest rate is the account that is growing the quickest. If you pay it off, you could save yourself a bundle in interest charges. The same logic applies to paying off your largest debts first. If you pay off your largest debts first, you will have more money to devote to your smaller bills and, technically, could end up paying them off faster.

The truth is this: while you are struggling to pay off your larger debts or the card with the highest interest rate, your other (smaller) bills are also being charged interest and finance fees. Your largest bill is also usually the hardest one to pay off.

Instead of getting frustrated while you work to pay off your larger debts, pay off the smallest bills first! An account that has been paid in full looks good on your credit report and could help raise your credit score. Paying off the smaller accounts then gives you that money to put toward your larger accounts—cutting down on those accounts’ finance fees and interest charges. More importantly, you will feel a sense of accomplishment each time you pay a bill off completely! Those proud feelings will help keep you focused on paying down your debt!

Good luck!

Creating Your (dreaded) Budget

If there was ever a time to get serious about paying down your debt, that time would be now. With the economy in a tailspin, more and more people are finding it difficult (if not almost impossible) to pay their loan and credit card payments on time. This is making the banks and credit companies nervous and it is resulting in the tightening of their proverbial fists. They aren’t calling it a “credit crunch” for nothing.

This is not the time to pay only the minimal amount on your bills and it is definitely not the time to skip a payment. It is time to get serious and get rid of your debt before doing so becomes even harder. The credit card companies and banks look for reasons to raise your rates and charge you extra fees under normal circumstances. With so many people defaulting, they are itching to recoup their investment. Don’t give them any reason to target you.

The key to reducing your debt is to figure out exactly how much money you owe. Get all of your bills together. Don’t worry about insurance or utility bills yet, we’ll include them in a little bit. If you don’t have a recent bill handy, call the company and ask them for a remaining balance. Write it all down. Make sure that the amounts left on your mortgage and car loans are represented. Add it all together and this is your debt. Tack on an extra ten to fifteen to percent to account for the interest that will be added as you pay down the debt.

Yes. The final number will probably be depressing.

Now, go through your bills. Write down two numbers. The first number is the minimum payment. The second number is the amount of money you are charged for interest and finance charges. Combine the two numbers and add ten dollars. This is your new “minimum payment.”

Total your new minimum payments. Yes, this number will still be depressing.

To your minimum payment total add the following: if you live in an apartment, add your rent payment. Add your insurance payments (car, home, rental, etc). Add in how much money you spend on groceries each month and your utility payments. Figure in how much money you will need for things like getting your hair cut, clothing for work, and even some for leisure time activities –seeing the occasional movie, splurging on the occasional dinner out, things like this. Be realistic. If you know that you are not likely to skip your monthly hair appointment, write it down. Total all of these numbers together and this is the amount of money you must make every month.

Does your monthly income match your monthly “out go?”

Don’t feel bad and do not panic if you don’t earn enough to make your monthly minimum budget. There is plenty of advice here on Wealth Junkies to help you figure out how to add to your income and how to reduce your spending.

Eliminate Credit Card Debt

Credit card debt can be very overwhelming. It adds up quickly, and the high interest rate makes it difficult to pay off. Here’s what to do.

There are three steps to eliminating your debt:

1. identifying and consolidating your debts
2. managing your debts
3. and reducing your debt

In order to most effectively eliminate your debt, you must take all three steps.

Identifying and Consolidating Your Debts

Make a list with the following for each of your credit cards and other debts: the debtor, amount you owe, and the interest rate. The purpose of this list is to identify which credit cards need to be eliminated first.

You will want to start eliminating the higher interest rate credit card debt first because it is costing you the most every month. Some credit cards can have rates as high as 21% or more - if you are carrying debts of such a high rate you should eliminate that first.

If you owe a large amount of money at a high interest rate you will want to consider transferring that debt to a lower interest rate credit card. As another option, you can consider getting a debt consolidation loan from a bank.

If you are able to transfer some of your debts to a 0% interest credit card you should transfer your highest interest rate debts to a 0% card. This will let you manage that credit card debt while paying a minimum amount and then reduce your other credit card debts while carrying the first at zero interest.

You should try to consolidate your debts at the lowest possible interest rate. If your average credit card interest rate is 15% or higher you should try to consolidate to a single digit rate if you can.

Debt Management

Debt management is an art of maximizing the effectiveness of each of your dollars to pay off the most principal and the least interest. If you are able to keep a portion of your debt on a 0% card you could save thousands of dollars while managing your debt and focusing your energies on paying off a higher-interest card.

One important thing to remember is that if you are trying to manage your current debt you must do your best to not add any more to your debts. You’ll need to analyze your cash flow and not spend more than you are earning - you need to save every extra cent to get rid of this high interest debt!

Take advantage of 0% balance transfer opportunities. If you make the same payment each month to a card with 0% interest, you’ll pay off much more of the principal.

Debt Reduction

Make credit card payments each month. Even if you just pay the minimum, you have to make monthly payments on time. It will affect your credit score for the rest of your life.

If you are tight on cash, I recommend paying the absolute minimum to all cards but then pay the maximum you can afford on the card with the highest interest rate. Put your maximum effort toward paying off your highest interest rate credit card, and make it your goal to pay it off and close the account.

Take advantage of low interest rate cards whenever you can. If you can transfer some of your balance to a 0% card, you can pay a lower monthly payment on that balance. This will allow you to pay even more cash toward your highest interest rate credit card, which will make it easier for you to reduce your debt.

Cut back on any expense you can in order to save every penny to cut back your debt. Cut back on morning coffee, cut back on McDonalds breakfast, and save everything you can. Getting out of debt is a continuous process and you have to change the way you think about money.

Debt Reduction Tips

I talked about how I got into debt in my post, Crawling Out of Debt. In this article, I would like to share some tips that helped me get out of debt and grow my net worth from a negative number to a positive one.

1. When you want to spend money, figure out a way to earn some more. When you are in debt, you need to be careful you don’t spend more than you earn because doing that would only increase your debt instead of reduce it. It doesn’t matter how you do it, as long as your “goes ins” equal or exceed your “goes outs.”

If you want to buy a new camera, for example, try to sell some things you don’t need that are laying around your house. Or perhaps you can buy something cheap at a garage sale and sell it for a profit on eBay. If you make an effort to do this whenever you want to buy a new “toy”, it will make it easier for you to afford whatever it is you want to buy. And, more importantly, it will help prevent you from growing your debt even more when you are really trying to get out of debt. Whatever you earn will help pay for whatever you want to buy.

2. Make credit card payments each month. Even if you just pay the minimum, you have to make monthly payments on time. It will affect your credit score for the rest of your life. When you got that credit card, and every time you made a purchase, you signed an agreement saying you would pay your credit card company per your cardholder agreement. Now that you are in debt, don’t forget how you got there. Make regular payments to your credit card company.

3. Take advantage of 0% balance transfer opportunities. Just because you are up to your ears in credit card debt does not mean you have to take a beating with high interest rates. If you are making a reasonable effort to pay off your bills, i.e. you are making monthly credit card payments, the odds are you either have received or are qualified for a 0% interest balance transfer credit card offer. If you make the same payment each month to a card with 0% interest, you’ll pay off much more of the principal. Every cent you don’t have to pay in interest to your credit card company is money you can use to help pay off your credit card debts.

4. Once you pay off a credit card, beware of high credit limits. Do you really need a $25,000 line of credit? If you don’t, call and ask to have it reduced. They don’t get those kinds of requests very often, but trust me - the bank won’t mind. And it will be harder to spend as much money if you don’t have that kind of credit line with the bank. It will also keep your debt from spiraling out of control.

5. Keep track of your spending. Where is all of your money going? How much of it are you throwing away when you could be using it to reduce your credit card debt? Use Microsoft Money or Quicken. Download your bank statements and enter them into the software. Try to do it once a week or so that way the transactions are fresh in your mind. Try to break it down and figure out where every penny goes. I can’t say this enough - every penny you waste is money you could be using to pay off your debt. Knowledge is power, and when you are trying to reduce your debt this type of diligence can make a massive difference.

6. Get the best rate for your money - by paying off your debt instead of saving money at a low interest rate. I can’t tell you how many times I have seen people call into Suze Orman’s show and tell them they were saving money at 2% interest while they had thousands in credit card debt and were paying 18% interest on that. Every time, Suze yelled at them because they were being foolish about what they were doing with their money. People that have thousands in credit card debt yet put money into a savings account earning a low rate are losing money every day because they could be earning 18% interest on their money by paying off their debts and NOT having to pay it any longer. I am not saying you should not be saving money, but what I am saying is that you need to be realistic when you look at the amount and interest rate of your credit card debt when compared to the interest rate you are earning from a savings account. The odds are that you will be better off using some of that extra cash to pay off your debt.

7. Save cash for the holidays so you avoid adding to your debts. A lot of people spend the whole year trying to reduce their debts but then find themselves with thousands of dollars of new credit card debt after the holiday season. Don’t let that be you - plan ahead for the holidays so you can avoid holiday debt. My wife got me into the habit of contributing a small amount each week ($25-$35, for instance) into a “Christmas Club” account. We do this through ING Direct and have the money deducted from our checking account every week. The money we deposit goes into a separate account, growing and collecting interest all year. By the time holiday season rolls around, we have plenty of money for Christmas and don’t have to worry about holiday-related credit card debt. This also works great for vacations– we do the same thing, but call it our “Vacation Club” account.

8. Put your cash into envelopes so you are not tempted to spend beyond your means. A great way to budget is to take out the cash you need for things– gas, food, bills, etc., and put the money, in cash, into a few envelopes. Want to buy a pair of shoes? The money will have to come from somewhere. So you either eat less food, use less gas, etc. You get the idea. This forces financial discipline. It works!

9. Avoid “get rich quick” schemes. Lots of people fall into these traps. But few people actually get rich from them. You probably didn’t get into credit card debt overnight; don’t expect you can get out of it quickly either. The key to getting out of debt is to become more disciplined about your money and put as much effort as you can toward paying off your credit cards.

10. Try to cut out every day expenses. Do you really need to buy the newspaper every day when you can read it online? Do you need to buy magazines from a news stand when you can save a bundle by subscribing or just borrowing them from the library? Do you need to spend $10 on lunch each day when you can buy frozen meals for $3 or less, or make your own sandwiches for under $1? It adds up quickly, and it all adds up to money you can use to pay off your credit card debt. Don’t throw away this cash on things you can go without, cut every corner so you get out of debt as quickly as you can.

11. Save your pre-tax income. If your company offers a 401k, take advantage of it. Over the past few years, I was able to save a very painless $250 per month of pre-tax income. I didn’t notice it at all, and had I not saved it pre-tax I would have paid more than $80 of it in taxes anyway. But now, after a few years of painless saving, that account has ballooned to over $15,000. Even if you don’t directly use this money to get out of debt, you will only miss two thirds of whatever you save because you would have paid the other third of it in taxes to the government anyway. So take advantage of this opportunity to grow your net worth by saving your pre-tax income.

Pay Highest Interest Debt First

One way to maximize the value of your dollar while paying off debts is to target where each of your dollars goes. The most efficient way to do this is to focus as much of your money into paying off the principal and try to minimize the amount of interest you are paying - by paying off your highest interest rate balances first, or transferring your high interest rate balances to a lower interest rate card.

If you have multiple credit cards and loans, take a look at each bill and prioritize them in order from highest interest rate to lowest interest rate. Pay the minimum for each bill except the one with the highest interest rate. For the debt with the highest interest rate, pay as much as you can each month.

Once you finish paying off the account with the highest interest rate, or are able to transfer that high interest rate balance to a 0% or low interest card, focus all of your resources into paying off the account with the next highest interest rate.

Repeat this process - and try to focus all of your financial resources on paying off one bill at a time.

Taking this approach will consistently reduce your debt’s average interest rate because you are consistently paying off the balance with the highest interest rate (or transferring it). And over time, it will help you build momentum toward eliminating all of your debts because you will be able to use a larger and larger percentage of your financial resources to put toward the principal of your balance and not just interest.

This will allow you to minimize the amount of interest expense you have to pay by focusing all of your financial resources on the debt that is costing you the most in interest each month.

Crawling Out of Debt

I got my first credit card just after I turned 18. I was a sophomore in college. My credit limit was a lowly $300, but I was so proud of myself.

I wanted to establish good credit. I logged every transaction, allocated the cash right away, and never spent money I didn’t have. I paid off my bills every month. Soon, my credit line was increasing.

I then got an offer for a “Gold Card”. It had a $5000 credit limit. Why did they give it to me, Mr. Barely Employed College Student? I didn’t care. I was just happy to have it.

For a broke college kid, a Gold Card is powerful and amazing. It made me feel like a million bucks. I didn’t think about how I was going to pay the bill, because nothing seemed like a whole lot of money. It was twenty bucks for pizza here, a few pitchers of beer there, some flowers there.. nothing major.

I went home for Christmas break and felt like the richest guy in town. Most of my friends were broke. But they didn’t have to worry. I would treat them. I bought lavish gifts. I took people out to eat. One year, I even decided to go on Spring Break.

Then I got the bill. Ouch! Things added up quickly. And I owed thousands.

I did my best, paying the minimum every month. I cut corners every way that I could. I started applying for other cards and transferred the balance amongst them. And every time I worked, I tried to put a little bit of money towards my balance.

But I didn’t want to stop spending either. How could I? I would only enjoy my young age once. So I tried to be creative.

The summer before my senior year, I stayed in my fraternity house to cut down on expenses and take two courses during the summer session. I wasn’t earning much money. In fact, I was so broke that when I wrote a check to pay the minimum of one credit card, I would overdraft my checking account. And that instantly charged money on another credit card that was set up to handle overdrafts. I was taking money off of one credit card and using to pay the other. If there was any left over cash, I would pilfer the account for spending money. Times were tight.

Believe it or not, there was a logic to my madness. I knew I was broke, but I also knew that I would, eventually, have plenty of money. I didn’t want to miss out on college life because I didn’t have money at that time. Although the interest rate wasn’t ideal, to me it was money well spent. I only had a few years. And if I didn’t go then, I would never get to go on Spring Break. I just didn’t want to have any regrets.

I was in one of those classic “keeping up with the Joneses” situations. I went to college with a lot of wealthy people. I had a full scholarship, but most of them had parents that funded everything. They all drove brand new vehicles like Jeep Grand Cherokees, Ford Explorers, and Acura Integras. They all had their parents’ credit cards and an unlimited supply of cash. I even know of a guy who wrote a check for $30,000 from his parents’ checking account to buy the BMW he wanted!

I was different. Because I was broke. When my mother asked how I was going to pay for college, my father said “He’ll find a way.”

I had a full tuition scholarship but needed to borrow money to pay for my living expenses. I had a few odd jobs, earning a few hundred dollars per month. But I usually spent it at bars, parties, and restaurants. After all, I was in college.

By the time I graduated from college in 1997, I had thousands in debt. Not including student loans, my credit card debts topped out at more than $10,000. I was paying a good chunk of each paycheck as minimums to my credit cards. With rent, a car payment, credit cards, and other bills, I barely had any money left. And I hated it.

I spent years managing and paying off my debt. I kept transferring balances and looking for zero-rate and low-rate cards. And I used every extra dollar I could scrounge up. Within about four years of graduation, I had my debt closed out.

Then I decided to get married, and had to pay for an engagement ring. Who came up with that two months pay rule? That almost completely refreshed my debt levels. It took me more time to get that paid.

In the nearly fifteen years since the experience started, I have come to many realizations and learned a great deal about myself. To learn more, check out my debt reduction tips.