How to avoid debt

Don Mecoy, Staff Writer

Published: April 27, 2008

Dump credit card and other debts. Pay as much as you can as often as you can to reduce the principal that’s accruing interest.

If you only pay the minimum payment on a credit card, it will take years to pay off the card.

For example, if you have $1,000 in credit card debt and pay only the minimum $20 monthly payment on an 18 percent interest card — and never charge another purchase to the card — it will take them eight years and four months to pay off their card.

Consider moving credit card debt to a low-interest card or, if you have investments, selling part of them to pay off the debt.

Keep track of your spending. Write down everything you spend to realize how much things cost you.

Use a calendar to record when paychecks are due in and bills due out. To avoid late fees, mail payments at least one week before due dates.

Create a budget and stick to it. Set aside a specific amount of money every month in four different areas: planned expenses for things like car insurance, utilities and clothing; emergencies; goals such as a new car, home, vacation or college; and long-term investments.

Visit www.cccsok.com/Education/Handouts/spending_plan.htm to access a budget form.

Avoid unnecessary shopping. Don’t use shopping as a hobby or reward, or buy things simply because they’re on sale. Limit food shopping to once a week.

Buy used cars versus new cars. New cars carry high upfront costs and can lose more than half their value in two and a half years.

Limit meals out. Pack lunches and snacks to avoid high-price vending machines. You could save $7 or more per workday — $1,820 per year — $18,200 over 10 years. At restaurants, use coupons and drink water.

Cut out incidentals. Eliminate cable TV, club memberships and magazines. Invest with discipline. Transfer a set amount from earnings to savings or investments each month.

Because the market is low, it’s easy now to be short-sighted. But in the long run, that will change. A monthly investment of $1,000 earning 8 percent interest will grow to more than $180,000 in just 10 years.

Build your retirement account. Maximizing the contributions to these plans will help reduce your taxable income and help you plan.

Sometimes the best way to increase your savings rate is to earmark a portion of any salary increase for retirement savings such as 401(k)s or pensions.

Choose advisers you can trust. Certified financial planners are the gold standard of the industry. Certification involves two years of curriculum and a 10-hour, two-day examination.

Sources: Trish Goodman of Partners in Financial Planning, Consumer Credit Counseling Services of Central Oklahoma, Dave Ramsey, Williams Financial Services, www.creativefrugality.com.

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