For more than half of card-carrying Americans, plastic is a mixed blessing. At an average annual interest rate of 17.1 percent, that generates interest payments of about $114 a month for each household. For some families, monthly debt payments may be little more than an annoying inconvenience. But consider this: The same amount invested on behalf of your child (assuming an 8 percent total annual return for 18 years) would amount to $54,989 by the time he or she is 18. Although the credit card seems to have become a national addiction, these are effective ways to get that monkey off your back:
1. Create a repayment plan. Tackle the worst first. If you have an account that charges 20 percent interest and another that charges 12 percent, pay off the costlier account first. But don't look to your retirement savings as a source of cash to repay your debt. You'll lose a hefty chunk of the money to pay federal and state taxes and an early-withdrawal penalty, and you could be jeopardizing your future financial stability.
2. Call your creditors. Tell your creditor that you'd like to set up a repayment plan -- doing so shows a creditor you're taking responsibility for your debt. At the same time, bargain for a better deal. Don't be afraid to negotiate with your credit card company, which may be willing to bend a little in the hope of getting back its money. Some lenders, for instance, will freeze interest on outstanding balances in return for automatic monthly payments.
3. Follow your money. This can be a labor-intensive job requiring detailed notations of every expenditure until you have a firm grasp of how much you're spending on nonessentials. But it's a key step in taking control of your financial life. So add up your bills, tabulate what you owe, and measure your debt load against your income.
4. Build a debt-free balance sheet. Easier said than done? Start by cutting up all of your credit cards (though you might wish to keep the lowest-rate one for emergencies). Instead of using plastic, use cash or a debit card.
5. Draw up a better budget and stick to it. Make a plan you can live with, but keep in mind that the more lifestyle changes you can make, the sooner you can be back on track. Likewise, forcing yourself to make drastic lifestyle changes may be setting yourself up for failure, just as in a diet. Consider getting moral support through an organization such as Debtors Anonymous, which sponsors weekly meetings nationwide for people to come and talk in confidence about -- and deal with -- spending problems. The primary purpose of Debtors Anonymous -- which charges no dues -- is to help people "live without incurring any unsecured debt, one day at a time."
6. Find out what your creditors are saying about you. Credit reporting agencies collect information on how you've handled bills in the past and how much you owe today. They make that data available to lenders, who often use it to decide whether you're creditworthy. What's done is done, so don't expect to erase a missed payment. But creditors can make reporting mistakes, and if there are some on your report, you have the right to correct them. To check the accuracy of your credit history, contact one of three main reporting bureaus for a copy of your latest report: Equifax, Experian, and TransUnion.
7. Avoid quick-fix "credit-repair" services. They'll charge you, but very few will genuinely help. Worse, many are costly scams.
8. Consult a reputable pro. Most cities in the United States have debt-counseling agencies that will lay out a debt-reduction plan and negotiate a repayment schedule with lenders. Often, these services collect a percentage of the repayment from the lender and charge clients little or nothing in fees.
The National Foundation for Credit Counseling, a network of 1,450 "neighborhood financial care centers," is one source of help. Certified consumer credit counselors will review a consumer's debts and assets and draft a debt-management program, which spells out how the consumer will repay creditors. If creditors and the consumer agree, the systematic plan goes into effect, and the consumer makes one payment monthly to the agency. The agency then sends money to participating creditors. It typically takes 48 months to pay off debt with this program. Another agency is the Internet-based Myvesta.org, which offers low-cost credit counseling.