Declare Your Independence From Debt Jul 03, 2011, 12:00 am By Emily Haleck

The average U.S. household carries nearly $15,788 in credit card debt, according to the Federal Reserve. This and other consumer debt can weigh consumers down and prevent them from building adequate savings. If you’re bogged down by bills, use these 12 tips to declare your independence from debt:

1. Calculate total debt. Before you can get out of debt, you need a clear picture of how much you truly owe. Determine how much total debt you have and how long it will take to pay it off using an online calculator like the one found at FairCredit.org.

2. Track it. Keep a list of every penny you spend for a month using a notebook, spreadsheet or free online financial manager (coming soon through Bank of American Fork’s online banking). You may be surprised at how small purchases add up and detract from debt reduction.

3. Create a budget. Figure out where you can cut spending, like eating out less or renting a movie rather than going to the theater. Put savings towards debt payments.

4. Get organized. Put all your bills and debt-related documents in a central location, such as an accordion file folder. Organized paperwork helps keep you aware, on track and in control.

5. Build a reserve. It seems counter-intuitive that setting money aside for savings can help you get out of debt, but having a safety net of $500 or $1,000 allows you to avoid using high-interest credit cards or costly payday loans when unexpected expenses are incurred.

6. Set up automatic deposits. Arrange for your paycheck to be deposited directly into your checking account and then set up an automatic payment that transfers a certain amount of your income to a separate account dedicated to savings or debt payment. Setting money aside right after you receive it ensures a contribution to your debt reduction.

7. Pay off highest-interest loans first. Oftentimes, this means paying off credit cards. If you can’t pay them off at once, at least make more than the minimum payment, which will reduce the hefty interest rate fees you would otherwise incur.

8. Compound payments. Once you have paid one debt in full, celebrate! Then take the money you were paying toward that debt and apply it, along with the regular payment, to your next highest-priority debt.

9. Cut the cards. The average U.S. household has five credit cards, according to CardWeb.com. Reduce the number of cards—or better yet, get rid of all of your credit cards—and you reduce the temptation to incur more debt. Paying with cash or a debit card instead ensures you have the funds to pay.

10. Consolidate debt. With interest rates at historical lows, it may make sense to consolidate your debt into a home-equity loan. You may also consider consolidating your credit card debt by transferring outstanding balances to one or two cards to get a better rate. Use the online calculator at FairCredit.org to determine how quickly you could get out of debt and how much interest you might save through consolidation.

11. Refinance. If you own a home, consider refinancing to an historically low interest rate. Doing so may free up hundreds of dollars each month that can be applied towards debt payments.

12. Get help. Assistance is available for little or no cost through government programs or non-profit credit counseling services, which will work with you to develop a long-term plan to pay off debt. To find an authorized credit counseling agency in your area, contact your local consumer protection agency or the Better Business Bureau. Home ownership counseling is available for free through the U.S. Department of Housing and Urban Development (HUD) at 1-800-569-4287.

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