 Working
your way out of debt
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 Dear
Dr. Don,
I have two national credit cards plus a Best Buy card. I
also have two loans. My boyfriend also has two loans and three or four credit
cards. My question is, how can we pay these off faster without going in more debt
and how can we start saving money?
-- Alison Accelerate
 Dear
Alison,
It's hard to diet during the holidays and it's a rough time to budget,
too. I actually prefer to call it a "spending plan" instead
of a budget, because I like to focus on what you're accomplishing
with your income. Semantics aside, reining in spending is the first
place to start in reducing outstanding loan balances. A Bankrate
feature, "Tips
for stretching your holiday budget," can help you think through
your approach to holiday spending.
Beyond the holidays, it really does come
down to managing your spending. If you spend less than you make, you can
allocate the difference to paying down your outstanding credit card or loan balances.
Apply the extra cash to paying down the credit card or loan with the highest interest
rate.
If you don't have any savings at all, it's a good
idea to make that a priority, too. An emergency fund can help
see you though a short-term financial crisis. A rule of thumb
in this area is to set aside three to six months' worth of expenses
in liquid investments such as a money market account, or MMA, at
your bank. A page, "Building
an emergency fund," from Bankrate's Financial Literacy
Guide explains sizing and investing an emergency fund.
How you and your boyfriend share expenses has an impact
on your ability to pay down your debts. If you're both trying
to get out from under your debts so you can turn your focus to the
future, versus paying off your past, you need to work on this together. Try
Bankrate's interactive work sheet, the Pay
Down Debt Adviser. You should also take a stab at "Budgeting
101: Start Your Own Budget."
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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