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Loosening the Shackles of Debt

Overwhelmed by credit card debt? You're not alone. Try these tips from the experts for breaking free.

En español | Even with the economy slipping off the tracks, you can still keep your finances on the straight and narrow. Here are some ways to better use your credit cards, keep more cash in your pocket, make some extra, and save what you have.

Know the Credit Traps

Many Hispanic families are seeing their credit card usage and debt steadily rise, and their credit scores fall. In a National Foundation for Credit Counseling/MSN Money study, 32 percent of Latinos reported credit scores below 700, which often translates to less favorable loan terms on major purchases from automobiles to homes.

But there are several ways to help improve your credit score, says Louis Barajas, a certified financial planner in Santa Fe Springs, California. Pay bills on time, use the cards you already have, and avoid opening several accounts simultaneously. Ironically, you can hurt your score by never using your credit cards, so Barajas suggests making modest charges that you can pay off at the end of the month.

Tempted by those offers of lower interest rates to move your balance from one card to another? Beware of low introductory rates—which shoot up after a few months—and expensive transfer fees. Instead, ask your current credit card company to match any lower rate offer you receive.

In any event, "read the fine print on any credit card offer or agreement," advises Marla Lutz, a credit counselor at the Consumer Credit Counseling Service of South Texas. "Many companies use tricky words." For example, several credit cards have a universal default clause, which allows them to raise interest rates if you fall behind on any payments, including mortgage or medical bills.

What happens if you do find yourself backed into a credit corner? Take the case of Ramiro and Lucy García (not their real names). After Lucy's battle with cancer 15 years ago, and several shoulder surgeries that put her out of work, the North Hollywood, California, couple—both in their 50s—were $85,000 in debt and desperate for help. After trying to negotiate payments with credit companies, they called Barajas. He reviewed their situation and recommended a debt settlement company, a move that Barajas himself says should be a last resort—as it was for the Garcías.

Other experts agree. "They charge thousands for something you can do yourself," says Lutz. You can also be taxed on the settlement and it can hurt your credit score. If you do your own negotiating, be sure to request your offer in writing, she adds.

Next: More tips: Save for the tough times, and don't forget to check your free credit report.>>

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