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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.>>

Keep More Cash in Your Pocket

Using cash more often than credit could make you more aware of your spending. Experts say an empty wallet sets off alarms that several swipes of your credit card don't. And while credit card statements can track your spending, free web-based budgeting tools also can come in handy if you use cash instead. Barajas says it might seem old-fashioned, but labeling envelopes for different expenses, putting the cash in, and not spending it on anything else is sometimes the simplest and most effective strategy.

Make Some Extra

If you're wondering where to get the cash to put in those envelopes, consider freelancing. Websites such as and allow you to find projects that match your expertise and skills. No time to freelance? Try selling items you don't need anymore on eBay or Craigslist.

Save for the Tough Times

While extra cash is nice, having an emergency fund for living expenses in case you're unemployed or suffer another type of financial crisis is critical. Use flexible money-saving instruments, such as money market funds or CDs, to save at least three months of living expenses. Some banks offer short-term CDs or ones that allow penalty-free early withdrawal.

Know Where You Stand

Get your free credit reports once a year at or separately from Equifax, Experian, and TransUnion, the consumer credit reporting companies. The free report doesn't include credit scores, so it may be worth paying the extra fee to get them. Generally, a score above 700 makes you more attractive to lenders and lowers your interest rates and insurance premiums. Report negative or inaccurate information to the company so it can be fixed.

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