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Credit card debt has a way of spiraling out of control. The worst thing you can do is ignore it and hope it goes away. When you make poor financial decisions, these details begin to appear on your credit report, which can prevent you from getting a home, insurance or even a job.

4 steps to analyze your situation
People in debt often hide their heads in the sand, or are simply unaware of how to deal with the problem. So the first step is an honest self-assessment. Below are four ways to get a picture of where you are.
1. Know how much you owe. Gather all of your credit card and loan statements and add up the outstanding amounts you owe — you do not want this to be a last minute surprise. Be sure to note what the annual percentage rate (APR) is for each account and whether the payment is fixed (a car loan) or variable (credit cards).
2. Know how much you have. Grab your payment stubs and documentation from any other regular income and determine how much income you have available per month.
3. Know your total monthly household expense. Not everything you earn can go toward paying debt. Write down all your monthly household bills and add up how much you spend on them each month. Be sure to include a cushion for emergencies or buying clothes.
4. Know how much you can afford to pay. Apply this formula to determine how much you can pay toward your debt: Household income – Household expenses = Balance. The balance is how much you should have left each month.

Linda Leitz, author and founder and co-owner of Pinnacle Financial Concepts Inc. in Colorado Springs, Colo., says, “Get a grip on spending. If you’re not spending less than you make, you’ll never get out of debt.”
Who should you pay first?
Credit card debt and small loans should probably be paid off before low-rate student loans and home loans. “Pay the highest amount you can on the higher-rate cards,” Leitz says. “Get them and their big interest expense off your plate first.”
Some factors to consider when prioritizing:

  • * Which debts have the highest interest rates?
  • * Which accounts are above 50 percent of their credit limit?
  • * Which debts are close to being paid off?
  • * Which debts have the highest annual fees?

Negotiate and consolidate
Call your creditors to negotiate lower interest rates or transfer balances to less expensive credit cards. Accounts that are greater than 50 percent of the available line of credit can harm your credit score, so pay off or move some of the balance on such cards to a different card.

Don’t keep adding debt
Now that you have a plan of action to reduce your debt, don’t blow it by continuing to pile more on. Save only one or two credit cards with low balances so that you can have access to credit if you truly need it. Harrine Freeman, CEO of H.E. Freeman Enterprises and a speaker, columnist and author, says if you are having trouble with credit cards, “Do not open any new accounts. Do not transfer balances unless you can pay the full balance before the promotional period expires. And do not get a cash advance or payday loans to pay down debt — cash advances are very costly, high-risk items.”

Dealing with debt
Getting out of debt and improving your credit report can be done. The following suggestions and resources are aimed toward helping you get on the right path.

  • Your public library should have plenty of books about budgeting and money
    management techniques. Take advantage!
  • “If you are trying to get out of debt, don’t take your cards with you when shopping,” Leitz says. Remove the temptation and use cash or debit cards until you are debt free.
  • Find a way to increase income, whether by selling unwanted items or taking on more work.
  • Contact your creditors immediately if you cannot pay your bills. They may work out a modified payment plan that reduces your payments to a more manageable level. Never wait for a debt collector to contact you.
  • Consider contacting an accredited credit counseling service. A good credit counselor will take you through the financial analysis steps described above, and then come up with a repayment plan. A counseling firm also may negotiate a formal debt repayment plan on your behalf with creditors, which may be willing to accept reduced payments. Be aware that entering into such a plan guarantees you will lower your credit rating because you will not be paying as agreed. Check the counselor’s credentials carefully before entering into such an agreement, and recognize that a repayment plan does not erase credit history; accurate information remains on your credit report for up to seven years.
  • If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you and may even reduce or suspend your payments for a short time. When you resume regular payments, you may have to pay an additional amount toward the past-due total. If you and your lender cannot work out a plan, contact a housing counseling agency. Personal bankruptcy should be a last resort because the information stays on your credit report for 10 years.

This has been general advice that works for most people. Before starting a credit card debt-reduction plan, consult with a financial adviser or accountant to discuss your specific financial needs