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Balancing Act

With so many couples coming together with debt from school and car loans and credit card balances, many families feel financially strained by the time the first baby arrives. Since you can't go without car seats, cribs, and diapers, you'll need to pay down your debt so you can balance your new baby budget. Here's how:

 

1. Evaluate your financial status.

According to Bill Cullinan, interim president and CEO of the National Foundation for Credit Counseling (NFCC), in Silver Spring, MD, you may be in trouble if you are near your limit on any lines of credit, you make only the minimum payments on accounts, or you use 15 percent or more of your take-home pay to cover credit cards. If any of these describe your situation, read on.

 

2. Assess your spending habits.

Examine your expenses  -- including everything from groceries to cable bills to insurance payments  -- and then compare them to your income. Keeping a record of everything you spend for at least a month will give you the most accurate picture.

 

3. Reduce expenses, increase income, or both.

If your expenses outweigh your income, you'll need to find ways to cut back on spending  -- or to beef up your paycheck, if possible. To tighten your belt without feeling the pinch, try brown-bagging it a couple of days each week (saving up to $80 or more a month), mowing your lawn instead of paying someone else to do it, or canceling luxury phone and cable services (most people can live without Caller ID and Showtime). If your job allows, increase your income by taking on a few hours of overtime each week, or trading in vacation days for additional wages. You or your spouse might also find a little extra part-time or freelance work.

 

4. Cut back on credit cards.

"The typical consumer has about eight credit cards in his wallet," says Cullinan. "And based on his spending patterns, this may be far more than he really needs." Start by canceling cards you don't really need. If you want to get rid of a card on which you still owe money, cut it up, and then pay off the balance until you can close the account. On the cards you keep, try to pay more than the minimum every month  -- you'll reduce the balance faster.

 

5. Look for lower interest rates, but beware.

If you can consolidate credit card debt at a lower rate, that's great, but watch out for hidden fees. Some companies charge up to 3 percent of the total balance just for transferring it  -- a significant amount for a large balance. Another option: negotiating lower interest rates for your existing accounts. Call the number on the back of your card and tell the customer service representative that you're going to cancel the card unless the rate is significantly reduced.

 

6. If you need help, get it.

If you're using credit to pay for items that should be bought with cash (like groceries), you've been contacted by bill collectors, you're behind on your rent or utilities payments, you're spending more than 20 percent of your income to pay credit card bills, or you sometimes skip one payment to make another, you may need debt management services. Both the NFCC (800/388-2227, www.nfcc.org) and Debtors Anonymous (781/453-2743, www.debthelpnow.com) can help.

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