Revive your self and be debt free

Uncommon Sense


7 ways to radically cut your debt











When credit cards are sucking you down like quicksand, paying double or even triple the minimum payment won't cut it. Extreme debt calls for extreme measures.



By Mega clown  ( **  since i dont wanna  reveal real name so im usng some fucky names ** )


Editor's note: Columnist FUNKY  CLOWN  and six other women have come together online to strip away the myths surrounding money, lay bare their assets and liberate themselves from debt. Follow the quest for financial fabulousness of these "Women in Red" every second Monday in Dunleavey's column on MSN Money.



The other night I had a dream that I owed the dentist $15,000. It was quite a nightmare, and even after I woke up that petrified feeling stayed with me: Ill never get out from under this.



Unfortunately, that feeling is rooted in reality. Like a few of the Women in Red, I carry a lot of debt (did the group's name give it away?). And my husband does, as well -- a fact that neither one of us wanted to admit until recently.



Denial: Its the American Way

All the way through the first year of our marriage, we knew we each had a lot of debt. But it was under control! We were doing All The Right Things:





Paying triple the minimum payments, i.e. about $500 a month each



Had switched two-thirds of our balances to low-interest cards



Were using cash only, not credit

And we honestly believed that we could pay it all down -- without ever telling each other how much we owed. Until my editor twisted my arm, told me my marriage would be a sham if we couldnt communicate financially . . . and we finally told each other the truth.



What?Don't let retirement

sneak up on you.

Create a perfect plan.







Oh. About $24,000. No car loans, student-loan debt or even a large-appliance layaway plan. Its pure plastic.



Big debt is more common than ever

That may sound shocking, but super-high debt levels are becoming almost ubiquitous. As Im sure youve heard, the average person has between six and 10 credit cards; the average household carries about $8,000 in credit card debt, according to Cardweb.com. That little factoid is an average, which hides the fact that there are lots of people who pay off their credit card charges every month. For people who carry a balance, the average is considerably higher.



Financial coach J, author of Eliminate Your Debt Like a Pro," says that in his experience, people have grown used to having debt. And lots of it. I see many people who are comfortable carrying as much as $15,000 or $20,000 in debt, he says.



The trouble is when debt gets that high, standard debt-reduction methods like the ones my husband and I (and maybe you) were using simply dont work.



CHECK HERE WHAT MSN MONEY STAFF IS SAYING

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Here is a little quiz that can hepl you manage your debts



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How much debt can you take?

There are a couple of red flags to watch out for when you think you may be carrying Extreme Debt:





If you're paying so much toward debt you're NOT saving for the future.



If you're rationalizing to yourself by switching the debt around to a lot of zero-interest cards -- as though that's doing anything.

My spouse and I just realized that both of these apply to us. So even making the huge payments that we were -- $800 to $1,000 a month combined -- we were barely making a dent in that sucker. Like throwing Triscuits down the gullet of a ravening beast.



Financial adviser and psychologist Sharon Rich, says that its important to gauge for yourself whether the amount of debt youre carrying is too much -- and one valuable barometer is time. A good debt calculator will tell you instantly how long it will take to pay down your debt using the minimum payment vs. a higher rate.



For example, $3,000 may or may not seem like a lot of debt, depending on your situation. If you can only make the bare minimum payment of $75 (calculated at 2.5% ), with an interest rate of 14% its going to take you 205 months and over $2,700 in interest to pay it back. If you can pay $300 a month, it will take you 11 months and $208 in interest.



Rich suggests using a five-year cutoff. If you cant pay back (the debt) in five years, you might want to consider other options, up to and including bankruptcy.



The fallacy of debt reduction

Why? Because heres the dirty little secret about debt: The longer you have it, the longer it lasts. Its the biggest Catch-22 of consumer debt, Rich says. You built up debt because you couldnt live on what you had. Now you still dont have enough to live on -- AND you have the additional expense of paying back the debt. Its like quicksand.



NEWS FLASH: If you really (and I mean really) want to get rid of debt -- so you can take all that cash youre donating to Mr. Plastic and put it toward your life for a change -- little spending cuts arent enough.



Money problems are primarily solved by lifestyle changes, says Rhode.



Drastic debt calls for drastic measures

Or, as I say these days, you gotta practice Extreme Debt Reduction. In other words, slashing the comfy way-of-life expenses we are all attached to. Here are the top four for the average American family, according to Rhode:





Where we live



What we drive



Where the kids go to school



Vacations, vices and other big-ticket indulgences (Can anyone forget Carrie Bradshaws $40,000 shoe collection on Sex and the City?)

My husband and I didnt want to change our way of life any more than you do. But there is nothing like the nasty taste of a thousand bucks a month going down the Visa toilet to change your mind. Fast.



7 ways to radically reduce debt

Reduce housing costs. You can move to a cheaper abode, or you can get a roommate. In either case, make sure the cost (of moving, say) doesnt outweigh the savings.

Husband and I decided to rent out our den to a roommate at $900 a month, which will give us almost $11,000 to put toward our debt over the next year. (Thats a New York rent, but still. Even ye in Omaha can bring in a chunk of change this way.)

Drop a car. Gas, maintenance, car payments -- imagine the money you could save if you gave up one household car, or found other ways to commute and run errands. A growing number of cities offer car-sharing programs (Zipcar and Flexcar) or even bicycles.



Get (another) job. You dont have to work nights and weekends forever, but if a part-time job gave you an extra $300 a month, thats $3,600 you can put toward debt this year.

We are each taking on extra work -- bartending for him, writing for me -- which we expect to net us an additional $5,000 we can put toward debt this year.

Quit your vice. Most of us dont live the Carrie Bradshaw life, but todays indulgences can add up fast. At $7 a pack for cigarettes in New York, giving up a pack-a-day habit will save you $2,550.Get MPs free newsletter by e-mail

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Live moderately. Shifting priorities, and locations, can help downsize your lifestyle.

Thanks to our new roomie, my spouse and I spend more time upstate -- and a lot less money as a result.

Let the kids go public. According to the Council for American Private Education, the average cost of private elementary and high school is about $4,689 a year. Whew. Public school is . . . free!



Tap your assets. If you have access to a nest egg, windfall or generous relatives, you might consider using that money to pay off interest-generating debt. Dont raid your 401(k) or other retirement funds, but you might want to consider selling other assets.

My husband has about $18,000 in stock that he can sell for a loss. Using part of that to pay off the $6,500 debt currently on a 16% interest card is like getting a 16% tax- and risk-free rate of return.

The relief we feel taking these extreme steps far outweighs the discomfort (which is only for a year anyway). Check it out: The roommate gives us $10,800; living outside New York City is a savings of $2,760; extra work, $5,000, for a total of $18,560 paid toward debt by next August. The remainder is what well take out of his nest egg. Our current monthly payment will buy us some breathing room and a start on a new emergency fund.



And voila! Provided we stick to our guns and stick to our plan, we will be debt-free at last.