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Spend Not, Save Lot

Sometimes the best way to tackle your debt is to figure out how you got so deep in the hole in the first place--and then figure out how to modify your behavior so that you can avoid falling back in.

Although it may not seem polite to refer to a person as a "cheapskate" or a "spendthrift," a lot of people embrace these descriptions! It's all part of a movement that some call "frugal living." It's not about being cheap, but about living well and living within your means. One important advantage of eliminating wasteful habits and reducing your spending is that you increase the amount you're saving and investing.

For many people, this means adjusting their lifestyle to enable them to live within their means. The idea is simple--don't spend more than you make! Putting it into practice can be a little more challenging. The folks at Cheapskate Monthly (http://www.cheapskatemonthly.com) are ready to help. Hosted by author Mary Hunt, this site is a companion to her monthly print newsletter.

Figure 3.1 Learn tricks and tips to make every dollar last longer at the Cheapskate Monthly.

Although much of the site is accessible by members only (for a modest annual fee), you will find a lot of free tools and tips to explore on the site. Check out the preview issue, for instance, or the interactive tools and calculators in the "Activity Center."

One of the biggest myths about investing is that you have to have a lot of money to get started. It's just not true! In fact, you can start with just $10 or $25 a month. Even if you are mired in debt, why not start your saving plan somewhere, even if you just put away a few dollars a month on a regular basis? At the same time, continue to pay off your debts. You will reap the rewards as you begin to see your savings grow and realize just how terrible it is to let yourself fall back into the debt quagmire.

If you get the idea into your head that it's far better to save than to spend, maybe you will think twice the next time you pull out your credit card! By cutting your monthly expenses, you will have more to contribute to paying down your existing debt and to funding your long-term savings plan.

Online Debt Reduction Calculators and Planners

After you've made up your mind to eliminate your bad spending habits, you need to make a plan of attack to pare down the debt you've already rung up. Your first stop on the Web should be Quicken.com's Debt Reduction Planner (http:// www.quicken.com/saving/debt). This calculator helps you tally up your existing debts, and then create a strategy to help you pay off your debts.

Figure 3.2 Add up all your debts using Quicken.com's Debt Reduction Planner, and build a step-by-step plan to eliminate them.

Before you begin using the planner, gather up all your credit card statements and other paperwork related to all your debts. Then enter all your current debts in the program. This includes credit cards, mortgages, auto loans, home equity loans, personal loans, and any other debts you might have. You will need to enter the interest rate, current balance, and payment details in the program, clicking the Save button after each item. Then click the Next button to go on to the next screen.

Americans Love to Charge!

As of August 1999, Americans had racked up $584.8 billion on their credit cards, a 7.3% increase over the figure a year earlier.

Source: Federal Reserve Board

The Debt Reduction Planner then calculates how long it will take you before you are 100% debt free. Don't get too depressed, however, because the Planner has a few tips for you. Click Next to go on to the next page.

The planner walks you through strategies that can save you money and reduce your debt faster. It shows you how much you will save by paying off high-interest credit cards first, by using some of your savings to pay down debts, and by reducing your monthly expenses. As you enter the amount of cash you can direct toward reducing your debt, the Planner recalculates your savings and the time required.

Figure 3.3 Quicken.com's Debt Reduction Planner demonstrates how quickly your action plan can get you completely out of debt.

Finally, the Planner shows you a "before" and "after" chart, illustrating how the plan you've just created can save you money. You also get an "Action Plan" that details how much to pay each month to each of your obligations for the next year.

Excessive Credit Card Switching Can Be Hazardous to Your Credit History

Although switching to a lower-cost credit card can save you money in the long-term, you shouldn't switch too frequently. Credit card companies don't necessarily like to see customers who continually open and close accounts, so you could be denied for a new card on this basis, even though the rest of your credit report is sound.

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