Getting Out of the Red

You've got trouble, my friends — with a capital T, and that rhymes with D, and that stands for debt. That's how the song from The Music Man might go if it had been written in today's economic climate. Interest rates are drifting higher, the personal-savings rate is next to nothing, and all this is happening at a time when income growth is barely keeping up with inflation.

Your personal-debt problems may soon worsen. The folks at Economy.com expect the Federal Reserve's string of interest-rate hikes to affect the interest rates you pay on your credit card sometime in the first half of next year, according to Scott Hoyt, the site's director of consumer economics. The key to feeling as little pain as possible is using the next six to nine months to pay down your debt smartly. In my new book, Pay It Down! From Debt to Wealth on $10 a Day (Portfolio), I discuss strategies to do just that. For instance:

FIND THE MONEY If you're like most people, you have no idea where you spend your cash or how much you charge each month until your credit-card statement arrives. By taking stock (pencil and paper works for this task; so does a money-management program like Quicken), you'll quickly learn just how much is going toward things like dry cleaning, iTunes downloads and those midafternoon Frappuccinos. Changing your habits is the surest way to find that $10 a day. And if you could manage to do that, in three years you would eliminate the hefty $8,000 credit-card debt load the average household is carrying.

ASK FOR A BREAK Think the credit-card interest rates you're paying are too high? You're probably right. So call the card companies and ask — simply ask — to have them lowered. More than half the time, that tactic will work. Then call your phone companies and ask to be moved to the best plans for your needs. And call your home and auto insurers and raise your deductibles. Those calls alone will get you a good part of the way toward your $10 a day.

MAKE THE HARD CHOICES The rise in consumer debt is causing some consumers real pain. The number of mortgages more than 90 days past due is up 20%, the number of foreclosures is up 18%, and the number of household bankruptcies is up 33% from their levels three years ago. If you're facing any of those scenarios, it's time to do more than simply stop spending. You may need to sell your house and trade down to a smaller one or rent for a while. To evaluate your options, visit a credit counselor with a certified housing counselor on the premises. Many not-for-profit consumer credit-counseling services offices have one.