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Beat Your Bills!

For many parents, opening the mail in the first few months of the year is a sobering experience. All the postman seems to bring are bills  -- a painful reminder of our generosity during the holiday season. Nearly half of American families go into debt doing their Christmas shopping, and one in five is still paying off those bills the following December, according to a survey by the Center for a New American Dream, a nonprofit organization in Takoma Park, MD, that promotes responsible consumerism (www.newdream.org). Of course, debt problems aren't confined to the last month of the year. The Federal Reserve reports that approximately 50 percent of young families routinely fail to pay off their credit-card balances each month.

As many parents discover, piling up charges ultimately produces an even bigger financial squeeze than there was in the first place. Here, ways you can reduce your balances as painlessly as possible:

KEEP THE PLASTIC IN YOUR POCKET

Before you can pare down your debts, you'll need to stop building them up. The rule is straightforward: If you don't have enough cash, don't buy the item. "Credit cards don't feel like real money, which makes it easy to spend more than you can really afford," says Gerri Detweiler, coauthor of Slash Your Debt: Save Money and Secure Your Future.

To help you stick to your no-charge pledge, try to get a handle on where your money really goes every month, and look for areas ripe for cutbacks. "The pie is only so big: When you add in the expenses of a child, something has to come out," says Pat Arena, director of education at Consumer Credit Counseling Service of South Florida, a nonprofit agency in Miami. She suggests sitting down and recording every penny you spend for a few weeks. Then prioritize those expenses so you can focus on paying for the things that really matter  -- in cash.

SHIFT YOUR BALANCE

Moving your outstanding balances to a lower-rate credit card can save you a bundle while slashing the time it takes to pay off your loan. Say you currently owe $5,000 on a card that carries a 17 percent interest rate. If you pay $100 every month, you'll end up shelling out nearly $4,000 in interest over the seven or so years it will take to erase your debt  -- assuming, that is, that you never charge another dime. But if your card charges 10 percent, you'd pay only around $1,500 in interest and reduce the pay-off time by two years.

Luckily, deals on low-rate cards are, increasingly, easy to qualify for. You can get a list of the best of the latest offers from a service called CardTrak, either online (free; www.cardtrak.com) or through the mail ($5; PO Box 1700, Frederick, MD 21702). Or you can simply negotiate with one of your current credit-card companies to get a better rate if you transfer balances from its rivals. "If you explain that you have low-rate offers from other card companies," says Detweiler, "they'll often lower your interest rate on the spot."

COME UP WITH A SYSTEM

If you make only the minimum payment required on your credit cards, you'll be paying off that plastic forever. For instance, if you owe $2,500 on a 17 percent-rate card and pay about $50 a month (a typical minimum-required amount), you'll need 30 years to pay down the debt and spend some $7,700 in interest along the way. Kick in just $25 extra every month, and you'll pay off that card in six years and spend only $3,800 in interest. Total savings: 24 years, nearly $4,000, and incalculable stress.

If you can't afford to bump up all your payments at once, focus on one card at a time. You'll save the most money if you throw every extra dollar you can extract from your budget toward the balance on the card with the highest rate, and continue to pay the minimum on everything else. Or, you might concentrate on paying off the card with the smallest balance first, because you'll be able to eliminate that debt much faster: "The psychological boost you get from seeing quick progress can keep you motivated," says Steve Rhode, president and cofounder of Debt Counselors of America, in Rockville, MD.

GET HELP IF YOU NEED IT

If, despite your best intentions, your credit-card balances continue to go up and you find yourself juggling bills because you can't afford to pay them all on time, a professional credit counselor may be the answer.

For a nominal fee, and sometimes at no charge, nonprofit services like Debt Counselors of America (www.americancredit.org) and Consumer Credit Counseling Services (www.greenpath.com), a member of the National Foundation for Consumer Credit, can have someone review your financial situation and help you devise a strategy to live within your means and pay off your credit cards for good. Although counselors report that, with help, some clients get their balances down to zero in as little as six months, the process more typically takes three to six years. "You probably didn't get into debt overnight," says Rhode, "so you're not going to get out of debt overnight either."

To stay motivated for the length of time you'll need to repay your loans, periodically remind yourself of the long-term payoff: "The benefit of getting out of debt is not just the money you'll save," says Detweiler, "but the financial freedom you'll acquire for your family."

Contributing editor Diane Harris is coauthor of It Takes Money, Honey, a book on personal finance for women.

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