President Clinton draws a downward line on a chart, unveiling his budget for the year 2013 February 7, 2000. The President is sending Congress a $1.84 trillion farewell budget with surpluses that he proposes using to wipe out the government public debt, provide modest tax cuts and greatly expand government health care. (Photo by Mark Wilson)

Debt can be an awesome burden to many families. I know from personal experience that living paycheck to paycheck is not a fun way to live.

Studies have shown that the root of many divorces comes down to money problems. Overuse of high interest credit cards, high interest payday or pawnshop loans, and other quick money sources make matters worse — not better.

Debt Reduction Mistakes

Quick money usually comes with a very high price. Applying for too many credit cards and you will increase your annual percentage rate and damage your credit rating.

A low credit rating can have an adverse affect on home and car loans, car and home insurance rates, and rental housing costs.

Here are some things to avoid on your road to debt reduction.

  • Borrowing From Your 401(k) Retirement Fund: The tax penalties for doing this are very heavy. You could owe up to 50% of what you take out in taxes before the dust completely settles. Your CPA or financial advisor can give you better alternatives.
  • Don’t Refinance Your Mortgage: Credit cards and other such debt is unsecured debt. Moving that debt to your home equity is not a smart way to go. You could not only end up with a bad credit rating but losing your home as well if you fall behind in your payments.
  • Credit Repair: Late night TV is filled with unscrupulous people who claim to be able to fix your credit for a price. There is no guarantee that your creditors will make a satisfactory deal that will work for you. Call the customer service number on the back of your credit cards and try to make a deal for repayment as a lower rate. Most want to get some money rather than no money.
  • Research Consolidation Loans: Another scam is the company that will pay your debt off and you pay them a lower monthly payment. Sounds great on the surface unless they are charging you more interest over a longer period then paying off your cards yourself. Know what interest rate you will pay and for how long.
  • Credit Card Transfers: You may get a new credit card with a low introductory rate. So you might think transferring the balance on a high interest card would be a smart move. You would be right if, and only if you can pay off the card before the introductory rate expires. So think carefully before transferring any balances that might increase your interest charges.

Reducing Debt The Right Way

The first steps to reducing debt correctly are to create a budget and stick to it. Next, set up automatic credit card payments with your bank or on the credit card site so you never miss a payment.

On time payments are critical to building a good credit score that will pay off in the long run. Always pay a few dollars more than the minimum payment.

Retire the credit card with the smallest balance first. Then add that payment to the payment on the next card and so on until all are reduced.

Once you’ve paid down your cards contact your cardholder and request a lower interest rate on future purchases with that card.

Use cards that give you points or cash back. If you are able to pay them off each month it’s like making money while spending it.

Some Final Thoughts

Controlling debt is like controlling weight. It’s doesn’t come off in one day. It’s a lifetime change you must adopt.

Having more money won’t always make your life better but it does make monetary challenges easier.

Make a conscious effort to save 10 percent of every paycheck, if you can’t do ten, do five, if you can’t do five, do one percent. The point is save something every payday.

Make debt temporary — Not permanent.