Trapped by debt? Free yourself in 7 steps
byTerry Savage

There's an economic recovery coming, and what an opportunity for you: Now you have time to get your financial life under control.

The recession may be over -- or it may have been so brief that it didn't officially qualify as a recession in spite of all the official pronouncements. But whatever the statistics say, many American families still find themselves in a personal financial recession.

Americans are declaring bankruptcy at record rates, with one in every 100 families affected by a bankruptcy. Though the stigma has diminished, the effects linger, touching your life in unexpected ways. For example, many prospective employers will pull a credit report as a character reference.

If you're overwhelmed with debt, the economy is giving you some breathing room now. Take advantage of the upturn to liquidate your debt. The next time around, you might not have this opportunity. There's still a push in Congress for more stringent bankruptcy legislation. And if interest rates start to rise, the burden of variable-rate credit cards and mortgages will become heavier to bear.

Americans are now carrying $683 billion in revolving credit card debt. That's not the amount we charge every month; it's the outstanding unpaid balances on which people pay interest. And, according to a report by Cambridge Consumer Credit Index, 47% of the people who paid less than the full amount on their credit card bills in a recent month, made only the minimum payment due. In fact, only 13% of Americans with an outstanding balance could afford to pay more than half the balance.

Pay now, or pay and pay and pay later

Not paying off the debt is a strategy that will bury you in interest charges. The way some companies calculate the required minimum payments, it could take you as long as 30 years to pay off your original purchase. And along the way, you'll pay four times the original charge in finance charges.

Surely the purchase that seems so important this month isn't worth a lifetime of indebtedness. The couch that is so attractive today will likely be long gone in 30 years. Vacation memories and photos will be faded if you're just paying off that hotel bill in three decades. And a meal charged today is down the drain before the bill even arrives.

It's time to rein in that debt and do something about paying it down. Here are seven steps you can take to get your debt under control:

Step No. 1: Make a list of what you owe.

This first step may be the hardest part of dealing with your debt. Put all your bills in a pile. Then list your debts in order, starting with the largest balance first. Next to the amount, list the minimum monthly payment, and the interest rate you're paying on that card. Now you know where you stand.

Step No. 2: Prioritize your repayments.

If you have one or two small balances, you might want to apply extra money to pay them off, while continuing to pay the minimums on the cards with larger balances. Or you might want to pay off the card with the highest interest rate first.

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