Money Basics

Tips for staying out of debt

Consider taking one or more of the following steps to help pay off debt or stay out of debt:

Credit cards

• Stop paying high interest rates. Apply for a card with a lower rate, but make sure you understand the credit card agreement before signing it.
• Consolidate credit card debt. Transfer your largest high-rate balances to a card with a low rate and work to pay it down.
• Stop using credit cards if possible. Cancel and cut up the cards you don't need. Write to card issuers, and close the accounts. (Check terms of use first because some issuers charge a higher interest rate on the remaining balance due to people who close accounts. If this is the case, pay it off and then cancel it.)
• Consider using some of your savings to pay off debt. It may sound drastic, but it makes sense if the money in your savings account is only earning interest of 3.5 percent, while the price of carrying debt is 15 percent or higher.

Student loans

• Consider consolidating if you have sizable student loans. Under the federal Direct Consolidation Loans program, you can combine multiple federal education loans into a new loan. Benefits include no charges for consolidation, a choice of different payment plans, and dealing with one lender and one monthly payment. Also, the interest rate cannot exceed 8.25 percent. Call (800) 557-7392 or (800) 557-7395 to find out if you are eligible for this program.

Other debt

• Create a monthly budget, and stick to it. You may be able to put more money toward paying off debt.
• Don't borrow what you cannot afford to pay.
• Stop overspending. Don't go shopping when you are depressed or upset, or when you believe you deserve a treat. Look for less costly ways to treat yourself well.