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• Don’t take cash advances or payday loans.
• Don’t borrow more money to pay off a credit card bill.
When paying credit card bills, it’s important to pay more than the minimum due; otherwise you’ll never chip away at the total. However, if the minimum is all you can afford, Fouquart suggests the following approach: For the first payment, pay the minimum. The following month, the minimum will be lower, but stick to the first amount. Continue paying that amount until the debt is gone.
If all this sounds overwhelming, maybe you need the help of a credit counselor. A good credit counselor will work with you for free or low cost to set your household budget and develop a personalized plan to prevent future difficulties. If your debts are severe, a counselor can enroll you in a Debt Management Plan (DMP), where you pay them a fixed sum each month and they distribute these funds to your creditors, perhaps negotiating reduced or waived finance charges on your debt, and relieving you of the anxiety of collection calls and multiple bills.
However, beware of credit counseling services that jump straight to the DMP option. Gail Cunningham of The National Foundation for Credit Counseling (NFCC) warns, “Just as you’d do your homework when selecting a new doctor or accountant, you need to research this area.”
Even “nonprofit” credit counseling firms may charge hidden fees. “There are many red flags,” says Cunningham, “but prominent would be promoting a DMP as the only solution, or the absence of any substantive financial education.” The NFCC’s member agencies offer dozens of financial education workshops that are open to the public and free of charge.
Finally, if you’re taking steps to address your debt, you’re off to a positive start in 2009. According to recent figures from the Federal Reserve, Americans are already responding to the financial crisis by using their credit cards less. This year, why not aim to use cash only and give yourself the gift of a debt-free Christmas?
Better still, plan for a 2009 holiday season full of simple — and economical — fun. Make or bake your presents. Spend time with the kids building train tracks, painting pictures, or tobogganing. And teach them that the holidays don’t have to be a big consumer binge to be happy.
Resources
• A good place to start if you’re seeking credit counseling is the NFCC’s website. Go to www.DebtAdvice.org and hit “Take the First Step,” or call the NFCC at (800) 388 2227.
• For extra advice on handling credit card debt, check out “51 Ways to Save Hundreds on Loans and Credit Cards” at www.fdic.gov/consumers.
KIRSTEN DENKER is a freelance writer living as economically as possible in Brooklyn with her husband and two children, Benjamin and Caroline.