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Do It Now: Dig Out Of Debt

When it comes to New Year's resolutions, so many people want to improve their financial situations. All this week, The Early Show has teamed up with Money Magazine to help tackle your financial goals of 2006.

One of the most common resolutions is to stop supporting the credit card industry and get out of debt. That's exactly what Joseph and Joann Cascio want to do.

"It's too much debt for me to feel comfortable with, I would like it to be less," Joann said.

In 2001, the Cascio's income dropped drastically.

Joseph joined a start-up company, taking a $50,000 pay cut. Now, with a son in college and two little girls to support, their credit card debt has been creeping higher and higher.

"We have one that we use all the time for everyday use. We have a zero percent card -- two zero percent cards," Joseph said. "I think one is $4,800 and the other is $3,100. So whether it's $7,000 or $8,000, it's on two cards."

"Because of the charging for Christmas and holidays and all that kind of stuff, the charge card that we pay off every month happened to be extremely high," Joseph said.

That shot their credit card balances up from $8,000 to $12,000.

"We're putting more and more on these mileage charge cards that we get the miles for which I think has to stop, and we're moving that to other charge cards with the balance transfer deal," Joseph said. "It's kind of getting, in my perspective, it's too much."

The debt does not let them add to their kid's college funds or their own retirement plans.

"I don't know where we're going to cut and what we can do," Joann said.

"We don't go out a lot to eat. We don't do anything for ourselves," said Joseph. "We do want to get rid of the zero percent cards and save some more money, but how do you do that when you're worried 'do we have enough money to spend to pay the bills?'"

Eric Schurenber, Money Magazine's managing editor, sat down to talk about financial strategies with The Early Show co-anchor Harry Smith.

He says one thing the Cascio's are doing right is that they've transferred all of their debt to cards that have a zero percent interest rate. That alleviates some the pressure because they're not paying any exorbitant interest rates on those balances.

For them, the most important thing they need to do is to stop charging everything on that card that earns them miles. Schurenber says it's too easy to spend more when your just charging it. If they're paying for things in cash or using debit cards, they're going to spend less because cash hurts.

While they may be earning miles on their credit cards, odds are the couple is spending a lot more than they would if they just paid for those airline tickets. Good deals are available online.

Once they stop spending so much on that card, and the bill is much less every month, they're going to be able to start paying off the zero percent cards, get out of debt, and start saving.

Here are some steps we can all use to help work our way out of credit card debt:

Elect Plastic Surgery

You don't have to literally cut up your credit cards, but you must stop using them routinely if you're serious about paying off your balances.

  • Go green. For everyday spending, carry around a set amount of cash to spend each week. You'll find you make better spending decisions when you actually have to fork over cash and there's a preset limit on what you can spend-when you run out of money, you stop.
  • Make debit your backup. When only plastic will do, like if you're buying online, for instance, use your debit card. The debit card can also serve as an emergency substitute for cash if you run out.
  • Leave your cards at home. Enforce the cooling-off period on new credit purchases by taking the cards out of your wallet. Store them in a place that's not easily accessible like a safe-deposit box or frozen in a block of ice.
  • Don't close the accounts. Have unused credit available from lenders with whom you've had long relationships to help boost your credit score.

    Lower Your Rates

    With a moratorium on charging in place, shift your attention to paring down your existing debt. Start by reducing what you pay in interest.

  • Do some comparison shopping. Check and Money' credit-card tables on page 49 of its January issue for lower-rate issuers.
  • Consider a balance transfer. Look for offers with a 0 percent introductory rate for a full year, relatively low rates thereafter (13 percent or less) and no annual fees
  • Play let's made a deal. Call your current card companies and explain that you intend to transfer your balance to another issuer unless your rate is lowered, says Scott Bilker, author of Talk Your Way out of Credit Card Debt. If your credit score is above about 750, you should be able to get your rate under 10 percent, he says. And, he adds, you should still be able to knock a few points off your rate even if your credit score is as low as 650.

    Tackle Those Balances

    Develop a strategy for paying off your existing balances.

  • Figure out what you really owe.
    Gather your statements and make a simple table listing the amount you owe, and the minimum payment and interest rate for each card. This will help you determine the order in which you should pay off your cards. Plus, the shock of seeing your total debt will provide extra motivation to stick with it.
  • Focus on the highest-rate card first. Pay as much as you can each month while making only minimum payments on your other cards.
  • Automate your current minimums. Late payments are the cardinal sin of debt management. You get slapped with hefty late fees and penalty rates as high as 30 percent, and your credit score will take a hit.
  • Go in order. When the first card is paid off, use the same strategy on the next highest rate card and so on until you're debt free.

    Tuesday morning on The Early Show, tips for being a smart investor.

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