Debt 101: Understanding the basics of debt
One main fact about debt is that it follows you. Credit card debt can ruin your credit rating and damage your chances to make purchases like buying that new car after graduation. In fact, if you miss a payment by just 30 days, you tarnish your credit rating for the next seven years after you pay it off! And, if you haven't made a payment in three months, your account can be turned over to a collection agency. This also stays on your credit record for seven years after you finally pay it off.

How many credit cards do you have right now in your wallet or purse? Many people feel that having a lot of credit cards proves they have good credit because they were able to acquire them. But, did you know that it is better to only have a few?

It may be obvious that if you only have two credit cards, you have less opportunity to run up your credit card bills. This is true, but what is really damaging about owning several credit cards is that creditors see the sum of the credit limits as your potential for debt instead of proof of good credit.

For example, if you have two cards with a $5000 limit, creditors see your potential for debt as $10,000. But, if you have 10 credit cards with $5000 limits, (even if you really only use one or two) creditors see your potential for debt as $50,000. Why does this matter? Because, next time you try to get a loan to buy a car, creditors might not be willing to give it to you because you have the potential to rack up $50,000 worth of debt on top of trying to pay back the loan they gave you.

I'm already in debt! What can I do?
Don't ignore debt problems. As mentioned above, debt can follow you for a long time. Be proactive in attacking debt. It may mean that you have to cut back in some areas of your life, yet getting rid of debt, and the interest attached to it, is worth a few months of sacrifice. Begin by cutting up your credit cards, and then consider these options:

1.		Pay-off the credit card with the highest interest rate first. Pay as far above the minimum as you can afford while paying the minimum on other credit card bills. Once you have it taken care of, begin paying the bill with the next highest interest rate and so on. Before you know it, you'll have reduced your debt substantially and with a little perseverance you'll be debt-free before you know it.
2.		Apply for a credit card with a low interest rate and transfer balances to it. This will relieve your interest charges enough to allow you to gain control over the payments. Be careful, though, many low interest rate credit cards will up the rate after six months. At this point, cut up the card and call to close the account. Then, apply for a different low interest credit card and transfer your balance again.
3.		Consider getting a job or a second job. Most of us feel like we don't have enough time in the day as it is, yet if you look at your day then look at your debt, you can probably spare a few hours in order to make a dent in the bills. One option for college students is to get an on-campus job. Consider looking for one that might provide time for studying while you work. For instance, a job at the front desk in a dorm might give you time to study while giving you some extra money to put toward paying off your debt. For those in the working world, find a second job that allows you to work weekends or a few evenings a week. It might be a pain for a month or two until you pay-off the bills, but it will be worth it in the end.
4.		Consumer Credit Counseling Service (CCCS). The CCCS is a non-profit service that can help you gain control over debt. If you're overwhelmed with debt, the CCCS can consolidate bills into one monthly payment with lower interest charges, and teach you how to pay with cash and stick with a sensible budget.

Developing a budget and sticking to it
While paying-off credit card debt, it is important to determine your spending habits and how you can control them, develop a budget and stick to it. If you don't have a plan, and the will power to stick to it, controlling and overcoming debt will be a tedious process.

Determining your spending habits
It is important to nail down where every dollar you spend goes because it is the nickel and dime expenses that usually cause a shortage of funds. Try carrying a small notepad with you for a month. Note every dollar you spend and what you spent it on.

Developing a budget
At the end of a month, sit down and categorize your expenses. Begin with fixed expenses such as rent, electricity and garbage. Then write down the variable expenses such as food, entertainment and clothes.

Now, determine what your take home income is after taxes and balance your budget. You should try to keep an extra $100 in your account as a cushion. You may need to divide the budget into two sections if you get paid twice a month. How did you end up? Are you in the red or in the black?

Controlling spending habits
Review your variable expenses and determine options to reducing costs. For instance, instead of going to movies you can rent movies or watch TV. Or, instead of going out to dinner, have a potluck at your place and if you still want to go out, go out for coffee or dessert. Also, consider emailing friends and relatives instead of calling long distance to reduce the phone bill.

Next, review your fixed costs. If you're still spending too much money, consider ways to reduce fixed costs. For example, consider getting another roommate to split the rent, garbage and electricity bills. Or, start recycling to cut down on the garbage bill.

Sticking to a plan: The envelope method
A sure-fire way to stick to your budget is to cut-up your credit cards, cancel your credit card accounts and use the "Envelope Method" of budgeting. Once a month, determine how much money you'll need for gas, for food, for entertainment etc. Then, get a bunch of envelopes and put the money you have budgeted for each section in each envelope and label the envelopes. Leave a little extra cash in case of emergency in another envelope. The only way this works, though, is to promise yourself you will not use any other money besides what's in the envelopes and to use the enclosed money only for its intended purpose.

One important note: Allow yourself at least a small amount of money for entertainment or clothes. If you completely deprive yourself of these extras, you are likely to overspend when you do decide you're deserving of them.

Credit card debt does not have to be the monkey on your back for years and years. Be proactive in attacking debt and reducing it quickly and before you know it you'll be debt free. But, remember to learn from your credit mistakes. Limit use of credit cards for purchasing and only buy what you can afford by using cash. Making and following a sensible budget will make staying debt free a cinch.

More Resources
Consumer Credit Counseling Services
American Express
MasterCard
Discover Card
Credit Card Network