How to Avoid Debt Paralysis

Few things can have a greater negative impact on your financial situation than accumulating too much debt. And these days, it's all too easy to fall into that trap. Credit cards are easy to get — and easy to overuse. Unexpected expenses can pop up at any time. Job loss, reduced income, and unexpected illness or injury can happen to anyone. Unfortunately, many Americans, because they're so deeply in debt, are not in a good position to handle these financial challenges when they arise.

Whether you're trying to get out of debt or stay out of debt, the National Foundation for Credit Counseling (NFCC) has these helpful tips to prevent debt paralysis:

  • DON'T hide purchases from family members. Honesty is the best policy. Hiding spending from loved ones not only makes it easier to overspend, it can also strain your personal relationships.

  • DON'T apply for new credit cards simply because you've reached the credit limit on existing cards. When your debt hole gets too deep, stop digging. When your cards are taken to the limit, it is time to pay off the balance and adjust your spending habits. Requesting a higher limit or opening new lines of credit causes more harm than good and mask underlying financial problems.

  • DON'T start charging when there is no money. Using credit cards to make ends meet when money is tight is asking for trouble. As a general rule, don't spend more than 20 percent of your take-home income on credit card bills or loans, including your car payment.

  • DO make more than the minimum credit card payment. Paying only the minimum amount on high-interest credit cards will get you through to the next month, but will do little to nothing to get you out of debt. In fact, it will probably make things worse. The NFCC recommends paying at least double the minimum; if you can't afford to do that, it's a definite red flag.

  • DO reduce expenses wherever possible. Trimming just $5 from your daily expenses adds up to more than $1,800 over the course of a year. Eating and entertainment is a good place to start. For instance, consider bringing your lunch to work, substituting video rentals for frequent trips to the movie theater, or visiting the local library as a resource for the latest books and magazines.

  • DO work with your creditors. If you continue to have difficulties repaying your debts, contact the creditor immediately and explain the situation. Creditors often will work with you to come up with an alternate payment arrangement.

  • DO seek help from an NFCC Certified Consumer Credit Counselor. If you have been unable to resolve your finances on your own, consider working with an NFCC member agency — such as the Consumer Credit Counseling Service of Greater Milwaukee — to create a plan you can live with.