2. Make a budget.The only way you can craft a plan is to know what you spend now. This is where a debt counselor can help. Whether you seek assistance or not, it's critical to figure out where your money is going each month and devise a spending plan that you can stick to.
It should be easy to identify big-ticket items for fixed expenses like rent or mortgage, car payments, insurance and so on. Nailing down incidentals and variable costs can be tricky. Be thorough. Look at your checkbook, or keep every single receipt then go over them at the end of the month. Do it again until you're certain you know what you typically spend. What are you spending on groceries, or cosmetics and clothes, or eating out? Close to fifty cents of every dollar spent on food is at restaurants, according to Dee Lee, a certified financial planner and author of "Women & Money."
Once you know where the money is going, you can start making choices about where you can cut back. You may be surprised how much that money's worth over the long haul. For example, quit spending $7 a day on lunch and brown bag it instead for $2.60 and you could save about $1,100 in a year. If that money had been saved and invested in retirement fund for two decades, you would have $61,340, assuming you earned a robust 9 percent. Use this budget work sheet to create your own spending plan.
3. Take advantage of a 401(k).There's only one time that planners agree you should divert money from high-cost debt to savings. And that's with an employer-sponsored retirement fund, like a 401(k) or Simple IRA, that lets you receive matching contributions for your savings.
"If you have a 401(k) that matches fifty cents on the dollar that's a guaranteed 50 percent yield," says Brobeck. "That's better than your card. If you get a match from your employer, take full advantage of that. It's the smartest thing you can do."
Today's employers typically chip in fifty cents for every dollar an employee saves in his or her 401(k), up to 6 percent of salary, according to the Profit Sharing/401(k) Council of America. If you put in $4,000 away, they'll toss in an additional $2,000.
As long as you're in debt, though, you don't want to put in more than the minimum required to get the match. Once you've done that, resume allocating money to paying off bills.
4. Pay off high debt.In life, there's good debt and there's bad debt. Good debt doesn't cost much, you may be able to write it off and you've spend it (presumably) on investment that will gain in value, like a home or education that boosts your earning power.
Bad debt, on the other hand, finances items like clothes, meals, or the latest electronics, things that don't gain value and frequently are worth less once you buy them. What's more, bad debt is expensive, often costing you more than you'd earn in most investments. The most common bad debt is debt on credit cards.
"Debt can be a tool to help you achieve dreams of home ownership, starting a business or getting a college education. But debt that's used improperly can really mess up those same dreams," says Lee. "If you have bad debt, make every effort to get it under control before it takes control of you."
5. Make power payments.Making minimal payments is critical, but hardly enough for card holders carrying hefty balances. In fact, if you make minimum payments you'll likely wind up spending more on interest than you do on the actual balance. Let's say, for example, that you have a $7,000 credit card bill that's charging 18 percent interest. If you stick to a minimum-payment schedule, you'll wind up shelling out $10,115 interest and it will take 347 months to wipe the debt clean.
Sounds simple. But what if you've already slashed spending and still don't have the necessary cash to do more than tread water?