5 ways to get out of debt

Getting out of debt requires commitment and persistence. Here are five basic strategies to help you get out and stay out of financial bondage.

Financial experts estimate that the average American family has $6,000 in credit card debt. Making minimum payments with interest rates hovering at 10%, give or take, that means even if they stop charging, it could take years to pay off this balance. Those monthly payments could be put to better use, such as family entertainment, dental braces, or a college education.

If you are currently in debt or want to avoid future debt, here are five ways that you can achieve financial solvency:

1. Start an emergency savings account. Ideally, you should have at least $1,000 in this account that can be used for car repairs, appliance replacements, or medical expenses. If you can put just $25 each week into this account, you will have $1,000 in less than a year barring unexpected expenditures before reaching the total. Then when something goes wrong, you don't have to charge it, thus adding to your credit balance.

2. Save three to six months' worth of salary. While this may seem like a large sum, you don't have to do it all at once. Use cash gifts for holidays and birthdays, unexpected windfalls like bonuses or an inheritance, or yard sale profits. You'll be surprised how quickly the savings will mount. When you reach your goal, you also will experience a surge of pride and confidence that will help you meet other important goals.

3. Set up a monthly budget. Make sure that both persons (if married) have a say in the budget. Otherwise, one may not be as committed as the other to following it. Use a zero-balance approach, which means that you total all income and subtract expenses to show where your money is going. Designate any "leftover" funds to a specific cause, such as vacation, petty cash, or entertainment. Your budget should show a "zero" balance at the end of each month because all the income is slotted for various line items, even if some of it is going to long-term and short-term savings accounts (as it should).

4. Stop charging. Follow your budget to avoid using credit. When an unexpected need comes along, as it is sure to do at some point, use your emergency fund. If you don't have enough, try to tap small amounts from several household accounts to make up the difference. For example, let's say your car needs a new exhaust system for $300. You take $200 from the emergency fund and then $25 each from the grocery, clothing, car repair, and entertainment accounts. You may have to skimp a bit in those areas, but it will be worth it when you don't have to use a credit card.

5. Make more than the minimum monthly payment. Paying additional amounts on the balance will pay off the account more quickly. When it is paid in full, do the same thing with the next one, and so on, until all credit cards are paid off. Start with the one that has the highest interest rate so that you can get rid of those high finance charges.

It won't be easy, but it's not impossible, either. Start with one step at a time, and in a matter of months you will feel like a new person as your credit balances dwindle and your savings accounts increase. Soon you can build long-term investments that potentially could put you into a wealthy income bracket.

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