MANAGING YOUR DEBT EFFECTIVELY

If you must have a charge card (which is possible if you have children, need a card for emergencies, or travel for business),consider getting a new card with no balance. Use this card only when you can't use cash or a check, and charge only an amount that you can pay of completely when the bill arrives. Because your goal is never again to carry a balance on a credit card, you absolutely do not want to start running up another balance.

Instead of going hell-bent for leather, slow down and apply these two principles: Get out of debt quickly and efficiently. $Incur as little future debt as possible. Stating the principles is easy; implementing them can be tough. We’re familiar with many debt-management scenarios. Some couples pay off their smallest debts first; if nothing else, they get a feeling of accomplishment that reinforces their debt-management initiative. Others shift their debt from credit card to credit card, exploiting attractive introductory rates on balance transfers.

This works well enough, provided you’re able to pay off the principal before the introductory period ends and the higher APR kicks in.

While you're seriously in debt is the only time in your life that anyone will tell you that your nest egg is a bad idea. If you have any money in a savings account, close the account and put the money toward paying off your high-interest credit cards. Why earn 4 or 5 percent interest on a savings account when you're paying 18 to 21 percent interest on your credit cards?
Liquidate any other assets you have, such as certifcates of deposit, stocks, bonds, mutual funds, and even collectibles, and use that money to pay down your high-interest debts as well. Nothing can earn you enough to make it worth keeping in the face of debt on a credit card that charges a 21 per cent interest rate.

However compelling these schemes seem, there is no quick fix to debt management. Instead, consider these four steps to efficient debt management, always keeping the underlying principles in mind.

Pursue several strategies here. First, prioritize your debt with the highest interest charges. Let’s say you’re carrying an auto loan at 10 percent interest and credit-card debt at 20-percent interest. Your objective here should be to retire the credit-card debt first, because its interest rate is punishing. Once you’ve prioritized certain debts, pay the minimum on everything else.

Another strategy is to negotiate lower interest rates with your credit-card companies. The field has become so competitive that some credit-card issuers are offering year-round rates of 9 percent to 11 percent, compared to the 18 percent to 21 percent that had been standard. If the issuers of your credit cards are unresponsive and won’t lower their interest rates, shop around for better rates and don’t hesitate to switch cards. You can transfer all or part of your current debt to your new cards at lower interest and your savings will continue on new purchases.

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