Some people don’t always make the best decisions when it comes to credit cards. If you’re one of these people, you could end up with so much credit card debt that you might have to consider getting help from a professional debt relief company. We know this isn’t necessarily easy to hear, but sometimes tough love is needed to shake debtors by their lapels and get them to understand that they need to make some fundamental changes with their finances in order to avoid more serious problems later on.

Before things get that bad, however, there are five ways you can check to see if your credit cards pass the stress test. If you fail any one of these tests, you should probably rethink how you use your credit cards, before you end up in over your head with debt.

1. Are you operating close to your credit limit?

If any of your credit cards are maxed out or near their credit limit, then you’re operating in the credit stress zone. Cut back on your spending immediately and take your credit cards out of your wallet and put them someplace safe so you can’t use them on impulse and overspend when you’re out and about. Remember, every time you use a credit card, you’re taking out a loan. If you can’t afford something with cash, you can’t afford it.

2. Do you open new lines of credit to get discounts and other offers?

If you’re signing up for credit card accounts — especially store credit card accounts — to get a discount off your first purchase, a low introductory APR, free airline miles, or some other kind of offer, your credit stress test will show a big red flag. These offers are known as “teasers,” and they’re designed to do one thing and one thing only: lure you into more credit card debt. Most cards that offer deals are only temporary, as is the case with first-time shopping discounts and introductory APRs, and rewards cards typically charge higher interest rates. If you’re already struggling with credit card debt, resist the temptation to open any new accounts.

3. Are you using credit cards to cover the gap between paychecks?

If you’re living paycheck to paycheck, the worst thing you can do is use a credit card — which is the same thing as taking out a loan — to cover the gap between paydays. If you’re doing this, you’re failing your credit stress test. If you can’t afford your monthly expenses, paying for them with high-interest credit cards will likely only result in paying eve more for the money you spend, on top of things like late payments, over limit fees, or the inability to make a minimum monthly credit card payment at all. And then you’ll be in real trouble.

4. Do you wait until the last minute to make credit card payments?

Waiting until the last minute to make credit card payments is another red flag on your credit stress test because it probably means you don’t have the money you need to pay off your debts. Making eleventh-hour payments because you’re a procrastinator or were busy and forgot is one thing, but hurrying to scrape together enough money to make a minimum monthly payment is a clear indicator that you don’t need to be using credit cards at all. Shelve the credit cards and go the cash-and-carry route to avoid having a credit card heart attack.

5. Are your credit cards declined when you use them?

If you’re getting declined at the cash register when you try to use your credit cards, it’s a major-league failure of your credit stress test. Not only are you operating near your credit limit — which means you’re carrying a high monthly balance — but you obviously don’t know how much available credit you still have. That means you’re simply not paying attention to your finances. And not paying attention to your finances is eventually going to get you into a heap of trouble. Retire your credit cards to a safe place and work hard to pay them off, little by little if you have to, while using only cash to cover monthly expenses.

Credit cards aren’t there to help you pay for things you can’t afford, they’re there to help you more conveniently spend money that you already have — although credit card companies don’t see it that way; they love it when cardholders carry a balance and pay lots of fees. And credit cards aren’t for everyone. Some people have a hard time using them while not over extending themselves and going into deep debt.

If you answered yes to one or more of these five questions, then you’ve either failed your credit stress test or are close to failing it. Our advice? Dump the credit cards, pay them off, and only use them for absolute emergencies if you can’t work out a payment plan when you get into a bind. Not only will your credit stress level improve, but so will yours.

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If you’re like most Americans, you probably carry some significant debt. In February, the average American was over $78,000 in debt, including credit cards, car loans, and home mortgages. And the average American with credit card debt had an outstanding balance of almost $16,000. In fact, the debt can be some much that some people have to turn to professional debt management firms for help. But there is a way to give yourself some personal debt relief, whether you get professional help or not.

The so-called “debt snowball plan,” coined by Dave Ramsey, uses psychology to help folks get out of debt. Normally, financial experts recommend paying off high-interest debts first because you’ll typically owe less over the long term. However, the debt snowball plan recommends that you pay off low-balance debts first so that you build up the confidence you’ll need to maintain long-term momentum on your way to debt freedom. Here’s how it works:

• Organize all of your debts and arrange them from lowest balance to highest balance
• Make all your minimum monthly payments on all of your debts, but pay as much extra as you can on the debt at the top of your list so you can pay it off faster
• Once the lowest-balance debt at the top of your list is paid in full, transition that payment as an additional monthly payment on the second debt on your list — in other words, don’t decrease your total monthly debt payment; use the extra money you no longer need to pay on your first debt to help pay down your second debt faster
• Once your second debt is paid in full, transition its monthly payment (which will be the amount you had been paying on your first and second debts combined) as an extra monthly payment on your third debt
• Repeat these steps as necessary; by the time you reach your final, largest-balance debt, you’ll be paying significantly more than the minimum amount each month (in fact, the total of all your other debt payments combined, plus the minimum monthly payment of your final debt)

Paying off your lowest-balance debt quickly and then transitioning that monthly payment to your second debt, and then the monthly payment from your first and second debt to your third debt, and so on, will help keep you motivated to get debt free as soon as possible.

Have you tried the debt snowball plan? Let us know how it worked for you. We did it, and it worked great for us.

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When talk show host and former broker Suze Orman started promoting a prepaid debit card with her name on it, the move ended up sparking a debate about the benefits and disadvantages of prepaid debt cards versus checking accounts.

Many financial experts were quick to bash Orman’s Approved Card, which is issued by The Bancorp Bank, for being, in one expert’s estimation, “the cream of the crap” of the prepaid debit card market, which targets lower-income consumers who are less likely to understand the pros and cons of prepaid debit cards. However, other financial experts have come out in support of Orman’s card, and prepaid debt cards in general, arguing that they’re no worse than checking accounts and, in some ways, are actually better.

Like other prepaid debit cards, Orman’s Approved Card charges a $3 monthly fee (as opposed to typical monthly fees of between $8 and $15 for other prepaid debt cards). The card, also like other prepaid debit cards, charges a litany of other fees, including fees to add money to the card any way other than direct deposit, out-of-network ATM fees, and other small transaction costs. At first glance, it looks like prepaid debit cards such as the Approved Card are fee hogs designed to charge consumers as much money as possible to access their own cash. Checking accounts, on the other hand, which often offer free debit cards, appear to be better choices for consumers.

Not so fast, says one financial expert.

How Prepaid Debit Cards Measure Up to Checking Accounts

Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, a trade organization that helps develop products and services for low-income consumers without bank accounts, says that prepaid debt cards are actually better choices for some consumers and often charge fewer fees than checking accounts (“Why Do Prepaid Debit Cards Have Such a Bad Rap?” American Banker, Jan. 24, 2012).

As virtual bank accounts, Tescher explains, prepaid debit cards are actually pretty good citizens of the banking world. They can only be loaded with “good” funds (that is, cash that the consumer has already acquired) and unlike checking accounts, which often allow overdrafts in exchange for significant fees, and credit cards, which allow consumers to take on significant debt, consumers who use prepaid debit cards can’t spend what they don’t have.

Additionally, the cards can be used to make purchases, pay bills, send money home, and save. Some prepaid debt cards, like Orman’s Approved Card, also come with a wealth of online money management features, such as personalized dashboards that analyze spending patterns, set bill pay notifications, and set up “goal funds” for saving money.

And when debt card fees are compared with those charged by checking accounts, the cards come out on top, Tescher says. The fee schedule of Orman’s Approved Card, for example, lists 20 possible fees. While that seems like a lot, the checking account disclosure from Chase is three pages long, includes seven footnotes in tiny type, and lists 29 possible fees, including two whole sections on check and debit overdrafts and associated fees, which aren’t possible with prepaid debit cards.

And yet prepaid debit cards are being painted as the bad guys.

According to Tescher, overcoming the vast consumer skepticism about banks and financial services brought about by the financial crisis — skepticism that is, in many cases, deserved — is the major obstacle to a clear and honest discussion about prepaid debit cards. Until the bar is raised industrywide and consumers start trusting banks and financial services, prepaid debit cards will be stuck in a negative news cycle, Tescher says.

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Talk show host and former broker Suze Orman is promoting a prepaid debit card with her name on it that will charge you at least $36 a year but does nothing to build your credit history. Although Orman tells consumers “You can bank on it,” financial experts have publically slammed the idea and warned consumers to avoid the card.

News that Orman created the Approved Card, which is issued by The Bancorp Bank, is somewhat puzzling, considering that the personal finance celebrity has based her talk show career on giving supposedly good financial advice. With the Approved Card, you can have a debt card with low fees that allows you to track your spending, protect your identity with free monitoring, and get free credit reports.

However the card comes with a base $3 monthly fee and charges you additional fees, including fees to add money to the card any way other than direct deposit, out-of-network ATM fees, and other small transaction costs. In essence, Orman is pushing a debit card that charges you a minimum of $36 a year to access you own cash, a service that you usually get for free from you own bank. And since it’s a debit card, it does nothing to build your credit history. Orman has claimed that she wants to change the credit rating system to reward people who have only one credit card or who pay with cash. But she only “hopes” that credit-rating firm TransUnion, after a two-year data-reporting trial, will decide to use the card’s cash transaction history on credit reports.

Many financial experts simply don’t see the point. Some have gone even further and have blasted Orman’s card, and the prepaid credit card market in general, for being nothing more than a bad idea for consumers.

John Ulzheimer, president of consumer education for SmartCredit.com perhaps came out the strongest against the talk show host’s card, calling it “the cream of the crap” of the prepaid debit card market, which targets people with fewer funds who may not understand that that there are better ways to have the luxury of a debit card and bypass fees at the same time.

“You are still paying at least $36 a year to have access to your own money,” Ulzheimer said. “And you’re doing nothing to help with your credit” (“Experts Not Queueing Up for Suze Orman’s New Debit Card,” Investment News, Jan. 13, 2012).

Adviser Mike McGervey of McGervey Wealth Management LLC said that while a debt card “can have some merit in regulating spending,” he called out Orman for charging for a service most banks provide for free and for having a potential conflict of interest in pushing her own product. “It might be a conflict because people view her as potentially objective,” McGreavy said.

It’s worth noting that Orman, formerly a broker with Merrill Lynch Pierce Fenner & Smith Inc., Prudential-Bache Securities Inc., and P&I Equities Corp., hasn’t been registered with the Financial Industry Regulatory Authority Inc. since 1991 and is not a registered investment adviser.

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It’s January, which means federal income tax season is once again right around the corner. The tax code is long and complicated and covers almost every imaginable scenario, even debt relief. That’s right — if you received debt relief services such as credit card debt settlement or a mortgage modification in 2010, then you’ll likely be considered to have cancellation of debt income and will probably owe federal income taxes on the portion of forgiven debt.

While that reality isn’t any fun, it’s a lot better than being audited. And although we’re not tax experts, we’ve provided a helpful summary of what you might be looking at in terms of tax responsibilities resulting for debt relief services. Of course, we recommend that you consult a tax professional who can help you prepare your return accurately. After all, you don’t want to make mistakes with the IRS.

Generally speaking, you’ll probably owe federal income taxes on cancelled debts if the cancelled amount exceeds $600. Possible sources of cancellation of debt income include credit card debt settlements, loan discounts or modifications, and home loan modifications.

Nonbusiness Credit Card Debt Relief

You might be able to exclude cancelled nonbusiness credit card debt from federal income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. Otherwise, you’ll probably have to pay taxes on the forgiven debt.

Loan Discounts and Loan Modifications

For loan discounts and loan modifications, you’ll likely owe income taxes on the amount of the discount or the amount of the principal reduction if are personally liable for the debt (called recourse) and keep any associated collateral. However, if you’re not liable for the debt (called nonrecourse) and you didn’t keep the associated collateral, you don’t have cancellation of debt income and you won’t have to pay taxes.

Home Mortgage Modifications

Whether you pay taxes and how much you pay on home mortgage modifications is complicated. You might be able to exclude some or all of a principal balance reduction from federal income taxes, especially if the reduction was secured through the U.S. Home Affordable Modification Program (HAMP). For more information, see the sections of IRS Publication 4681 on Qualified Principal Residence Indebtedness, including the subsections under Exclusions and Reduction of Tax Attributes.

Exceptions

Exceptions from cancellation of debt income may include income from cancelled debts as the result of a gift, certain student loan forgiveness programs, certain types of deductible debt, and often when reductions in collateral prices occurred after a sale.

Exclusions

Exclusions from cancellation of debt income are provided in some cases of bankruptcy and in insolvency and in some cases of qualified farm indebtedness.

Remember, this is just a brief rundown of some of the things you’ll need to know about your tax liability resulting from cancelled debts and debt relief services in 2010. You should use this information simply to help get your paperwork in order before consulting a tax professional.

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Paying off debt was the third most popular financial New Year’s resolution for 2012, according to Fidelity Investments. But shedding your debt can be harder than dropping those extra pounds. For people with significant debt, professional debt relief agencies that provide debt management, debt consolidation, or debt settlement services can be helpful tools for getting out of debt. Whether you seek professional help or are a do-it-yourselfer, here’s four New Year’s debt relief resolutions that anyone can use to make a real difference in 2012.

1. Stop using credit cards

The first thing you need to do to get out of debt is to stop using credit cards. As Bill Hardekopf, chief executive of LowCards.com says, “Don’t be throwing dirt on yourself when you’re in the hole already.” Put those credit cards away and start paying off as much credit card debt as you possibly can. Stick to cash or debit cards for your expenses and you’ll be doing yourself a tremendous favor, one that can help get you you out of debt and keep you there for the rest of your life.

2. Build an emergency fund

Between car notes, home loans, and credit card balances, you’re probably looking at interest rates anywhere from 2 percent to 29.99 percent — in fact, the average credit card interest rate is 14.56 percent, according to Bankrate.com. It might sound silly at first to sock cash away in a savings account that pays less than 1 percent interest, but building up an emergency fund will help prevent something like a blown tire or a doctor’s visit from causing you to break out your credit card to cover the unexpected expense. Having an emergency fund is just as important as paying down your debt. Ideally, you should aim for enough savings to cover three to six months of living expenses.

3. Consider taking advantage of balance transfer offers

Balance transfer offers from credit card companies can help you pay off your debts, but you’ve got to play it smart. Some offers may sound great, like 0 percent interest for up to 21 months, but you have to avoid the pitfalls contained in the fine print, such as interest rate hikes up to 19.99 percent or higher after one late or missed payment, and need to be able to pay off the balance in the promotional timeframe. After the promotional period expires, so do those low interest rates. And whatever you do, don’t buy anything with your transfer card. You’d just be throwing gas on the fire and going deeper into debt.

4. Look into a debt consolidation loan

If you decide not to seek help from a professional debt relief agency, you might be able to get a debt consolidation loan to help pay off your debts. If you have high interest rates from things like credit cards, an unsecured personal loan with interest rates of 10 percent or less might be a good deal. But a word of warning: a debt consolidation loan is like dynamite. According to Scott Halliwell, a financial planner for USAA, a debt consolidation loan in the right hands can do a lot of good, but “it’s pretty dangerous” if used incorrectly. You could end up deeper in debt if you fail to budget payments and you can end up owing more down the road if your repayment term is too long.

The key to keeping your debt relief resolutions this year starts with not using your credit cards. It’s that simple. Cut them up if you have to, but stop using them to buy stuff. Once you budget your monthly expenses and switch to a cash-and-carry lifestyle, you can start making some decisions about building an emergency fund, transferring your credit card balances, or looking into a debt consolidation loan. If you find you’re still struggling with your debt, you can always contact a debt relief professional.

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Credit Cards can make holiday shopping simple and painless. Until that first credit card bill arrives. Taking on credit card debt over the holidays can be fraught with peril. The best thing to do is avoid using credit cards for holiday shopping, but, if you have to take on credit card debt while playing Santa this year, make sure to avoid these four credit card debt mistakes.

1. Spending more than you planned

Spending more money than you budgeted is one of the easiest ways to take on unwanted holiday credit card debt. Marketers are really good at getting you to spend more than you want during the holidays — that’s their job, after all. Be careful of falling for the buy-one-get-one-at-a-discount deals and point-of-purchase items that call out to you while you wait in line at the cash wrap. Your best bet is to make a shopping list and a budget and stick to it. Also, consider shopping on a full stomach, as low blood-sugar levels can impair your judgment.

2. Amassing retail credit cards

Retail stores try really hard to get you to use their credit cards for holiday shopping. They’ll offer significant savings off your total bill if you sign up for one, but you have to sign up right then and there. But those retail credit cards often come with huge interest rates that can eat up any savings the cards offer on your first transaction. Two-thirds of retail cards have interest rates of 23 percent while the average bank card has an interest rate of about 15 percent. Pass on these tempting offers at all costs.

3. Accepting delayed-interest offers

This time of year, bank and retail credit card mailers come pouring in with “no interest until such-and-such a time” offers. Additionally, a lot of big ticket items, like bed mattresses and lawn mowers, can come with their own delayed-interest offers. However, these offers are very carefully calculated to make banks and retailers a lot of money. Either the delayed interest rate is built into the cost of the item or interest still actually occurs during the “free” period but doesn’t have to be paid until the end. Your best bet, like retail credit cards, it to pass on these offers.

4. Spending money you don’t have

Using credit cards for holiday shopping so that you can spend money you don’t have is the granddaddy of all holiday credit card debt mistakes. There’s really no way around this: if you don’t have it, don’t spend it. You might feel pressured into buying gifts you can’t afford, but we’re pretty sure that the recipients of those gifts wouldn’t want you to go into credit card debt in order to finance them. Buying someone an Xbox is very generous, but a really bad idea if you have to finance the purchase at 15 percent interest.

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The holidays are supposed to be a fun time for everyone, a time for family and friends to be together and spend time with one another. Unfortunately, the holidays are also a time of rampant commercialism where marketing and advertising efforts are ramped up to try and get you to spend even more money. The pressure to spend more than you can afford is higher during the holiday season and leads many people to use their credit cards to finance gifts for others.

However, using credit cards for holiday shopping can result in big credit card bills that take a while to pay off and which quickly tarnish the fond memories you just created. Here are six tips for setting your credit cards aside and avoiding credit card debt this holiday season.

1. Start saving now

The first step to avoiding credit card debt this holiday season is to start saving for purchases now. Whether you open up a savings account at your bank or grab an envelope or shoebox that can serve as your own personal savings account, start setting aside money each week or each paycheck. It may not sound like a lot, but saving $20, $50, or $100 a week can turn into big bucks quickly.

2. Make a budget and stick to it

After you open your savings account or grab that envelope or shoebox you’ll need to make a budget for gifts. Count the number of weeks you have to shop and multiply that by how much you can save every week. The resulting number will equal your gift budget. For example, if there are six weeks of shopping left and you can save $40 a week for gifts, your total gift budget will be $240. Once you have your budget, stick to it. Wandering off the budget path is the most surefire way to find yourself dipping into your credit cards to finance gifts.

3. Make a list — and check it twice

Now that you have a budget, the best way to stick to it is to come up with a gift list for friends and family. Make a list of gift recipients and divide your gift budget by the number of people on your list. The resulting number is how much money you can spend on each recipient without going over your budget. For example, if there are 10 people on your list and your gift budget is $240, your budget per person is $24. Think that’s a low number? Remember, your role this holiday season is not to go into debt in order to finance gifts for your friends and family. If you can afford more, great, if not, so be it. If someone’s upset you didn’t spend more on them, the problem is theirs, not yours, and you might want to reconsider them for next year’s list.

4. Make purchases only with cash

The most direct way to avoid going into credit card debt this holiday season is simply avoid using your credit cards by paying cash for your purchases. Although perhaps easier said than done for some people, if you start saving money now, make a budget, and make a gift list, using only cash to buy gifts will become an easy goal to accomplish. The holidays are great, but again, the pressure to spend more than you can afford often comes from retail stores and — you guessed it — credit card companies. Your friends and family don’t really care. Live within your means, shop within your means, and don’t finance gifts with credit cards.

5. Shop online first

Want to get the most out of your money? Try shopping online first. Websites like Amazon.com and others often have lower prices for items on your gift list and, if you order far enough beforehand, you’ll have the time to take advantage of free shipping on your order, which will usually take from seven to 10 business days. Of course, it’s hard to use cash online, but you can use your debit card instead. For better security, make sure not to save the debit card information into a user account. That way, it’s more difficult for online thieves to get a hold of your information.

6. Leave your credit cards at home

It might seem obvious, but leaving your credit cards at home while you shop for holiday gifts is especially important when it comes to avoiding credit card debt. There’s simply too much temptation to pull them out and use them on gifts not on your list that go beyond your budget or on gifts for yourself. People who carry credit card debt typically live beyond their means and buy stuff they can’t afford by carrying their credit cards with them wherever they go. If you have a problem sticking to your gift budget, or think you might be tempted to use your credit cards, simply leave them at home. You can’t use them if you don’t have them with you.

The holidays are supposed to be a fun time for family and friends to spend some time together and create lasting memories. But too often the holidays result in lasting credit card debt that takes months or even years to pay off. Do the smart thing and use these six tips to avoid credit card debt this holiday season.

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Many military servicemembers deployed in the Middle East or elsewhere are experiencing trouble with credit card debt, mortgage debt, or other forms of consumer debt. Whether it’s just you or you have a family back home struggling to pay the bills in your absence, there are several debt help and debt management resources available.

Military OneSource

The first debt help resource you should consider using is Military OneSource, a free service provided by the U.S. Department of Defense (DOD). Military OneSource helps service members and their families with a broad range of issues, including money and debt management. Services are available 24 hours a day by telephone or over the internet. Many of the professional consultants have military experiences and all receive training on military matters and military lifestyle to better help you.

Military OneSouce: (800) 342-9647, including via Voice Over Internet Protocol (VOIP), or online at www.militaryonesource.mil

Credit Counseling

Credit counseling is available in person or over the phone through a DOD partnership with the National Foundation for Credit Counseling (NFCC). You can also contact the Association of Independent Consumer Credit Counseling Agencies (AICCCA) directly for assistance. Make sure to spend time with the person you end up contacting so they can better assist you and your family.

NFCC: (800) 388-2227 or online at www.nfcc.org

AICCCA: (866) 703-8787 or online at www.aiccca.org

Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act (formerly called the Soldiers’ and Sailors’ Civil Relief Act) provided a wide range of protections for servicemembers, including helping you and your family postpone or suspend certain obligations, such as financial obligations, while you’re serving. Financial protections include deferring credit card debt, mortgage payments, and tax payments. For example, interest rates on credit card accounts that you had prior to beginning active duty can be reduced to 6 percent while you’re deployed, but you have to ask your credit card company for the protection.

For more information, contact Military OneSource or visit www.military.com/benefits.

Other Debt Help Resources

Depending on your service branch, you may be able to also receive debt help and money management advice and assistance through the Army Emergency Relief, Air Force Aid Society, Coast Guard Mutual Assistance, and Navy-Marine Corps Relief Society.

Army Emergency Relief: (866) 878-6378 or www.aerhq.org

Air Force Aid Society: (800) 769-8951 or www.afas.org

Coast Guard Mutual Assistance: (800) 881-2462 or www.cgmahq.org

Navy-Marine Corps Relief Society: (703) 696-4904 or www.nmcrs.org

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Debt management plans that offer to help pay your creditors by settling your debts with them can be helpful if you’re struggling with a lot of debt. Of course, the best way to manage your debt is to get debt free and stay that way. To help you achieve debt freedom, and maintain it, here are six tips for creating a personal debt management plan that will help you minimize and avoid debt.

1. Avoid using debt to buy depreciating assets

It’s hard to buy a car, new or used, without taking out a car loan. However, you should strive to avoid taking out loans or using credit cards to buy depreciating assets like cars. No matter what you hear from car salespeople, cars are not a “good investment” because of a high resale value; they never increase in value like an actual investment can (although maybe some super-collectable car will 50 years from now). Unlike appreciating assets — such as homes, investments, and rental properties — cars and other depreciating assets continually decrease in value from the moment you buy them. Add interest payments to the mix and you start paying a lot more for something that’s worth a lot less.

2. Follow a strict budget

The best way to ensure that you manage the debt you have while avoiding going into further debt is to develop a good monthly budget and follow it. The key component is spending less than you earn. Try using the Build-a-Budget Worksheet if you don’t already have a budget.

3. Build an emergency fund

Part of your monthly budget should be setting some money aside in a savings account that you can use for emergencies instead of breaking out your credit card. Emergencies, like medical treatment, home repairs, or unemployment, are bad enough. But paying 19.99 percent interest on related expenses because you don’t have an emergency fund is only going to make it worse and saddle you with more credit card debt. Ideally, you should strive to save from three to six months worth of wages to cover unexpected expenses.

4. Save for big purchases

Need to make a big purchase on the horizon, like a TV, computer, or dishwasher? Obviously, it’s best to not be blindsided with an emergency situation that you have to cover with a credit card. But if you know you’re going to need something on the horizon, or want something you don’t really need (like a 60-inch LCD TV), the best thing to do is to save up for the purchase. As part of your monthly budget, take part of your earnings — after saving for your emergency fund — and put it away in your savings account. Keep track of these additions and, when you have enough money, pay cash for your purchase. This way, you’ll avoid having to spend a lot more for the things you buy.

Here’s an example of how bad buying things on credit can be: if you have a credit card with an 18 percent interest rate (pretty common these days), making minimum monthly payments on a $1,500 TV will take you roughly 153 months to pay off (that’s almost 13 years) and will cost you a total of about $3,175. That means, in exchange for instant gratification and not having to save your money, you bought a $1,500 TV for $3,175. Not exactly a great way to spend your money or a wise way to stay out of credit card debt.

The best way to manage your debt is to not incur any. But for those who are in debt, including those enrolled in a debt management program to pay off a lot of debt, these four tips for creating a personal debt management plan can not only help you get out of debt, they can help make sure you stay there.

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