Driving Down Debt — A Key to Pursuing Long-Term Goals

If you want to do more to prepare financially for the future but find yourself sinking in debt, here are some ideas for digging yourself out.

Consolidate credit — First, look over your bills and pay as much as possible toward the cards with the highest interest rates and the minimum on the lowest rate cards. You can also transfer your balances to one card with a lower rate.

Another option is a debt consolidation loan. Carefully review the loan terms — even if you end up with lower monthly payments, a longer repayment period could cost you more over time. A home equity loan is another possibility, but you’ll need to think through the costs carefully. Remember, the point of consolidation is to pay off your debt sooner and to save you money while doing so.

Get a pro on your side — You can always call your credit card companies to negotiate a cheaper interest rate and/or reduced payments, but if your situation has become more severe, you don’t have to go it alone. There are many nonprofit credit counseling agencies that will help you create a realistic budget and may even assist you in negotiating with creditors. What’s more, many legitimate firms will charge little or nothing for their assistance.

Beware of credit repair — So-called credit repair firms promise to erase bad credit from your credit report. If the information on your credit report is accurate, nothing will remove it except time. According to the Federal Trade Commission, you should be suspicious of a company that demands payment for services up front, fails to inform you of your legal rights, or discourages you from contacting a credit bureau on your own.

Break the debt chain — You won’t become debt-free overnight — after all, you probably didn’t run up your tab in just one day. But once you’ve got your debt under control, keep it that way. Lose the plastic and stash your cash. You may find that an automatic investment plan could be ideal for instilling some discipline into your financial plans.

©2004 Standard & Poor’s Financial Communications. All rights reserved.