Did you know that the average credit card debt per household is about $10,000?  It’s predicted that by the end of 2005, American’s would have paid over $161 billion in household bills on credit and debt cards. (source: cardweb.com)  The amount of plastic in our wallets is astounding, with each American averaging 19.3 credit cards, this includes an average of eight bank cards, eight retail cards, and three debt cards.  (source: CNN money).  Which leads me to this one important question:  What are we thinking?

What can we learn from these statistics?  It’s simple when you think about it, right?  Stop spending money if you don’t have it to spend.  But is this really doable?  Is it realistic to think that we could live debt-free? Some debt is good debt — it builds our credit standing and allows us to be approved for more credit and thus to be further in debt.  Do you see the vicious cycle? 

Ok. Panic aside, some debt is necessary. Car loans, student loans, and home loans are pretty much standard forms of debt most Americans accrue.  However, $10,000 in credit card debt, well that’s something we might want to rethink.  

What do you do if you are drowning in a sea of debt?  How can you get out of it? How long will it take?  What are the steps you can take to rid yourself of the burden of owing money and interest you can’t ever pay off?  Will you ever be free?  The answer is: YES. But it will take a firm commitment from you and it’s not going to happen overnight.  Here’s how to consolidate what you owe and take control of your debt:

Start paying attention to what you are spending and keep track of it

Start by looking at your spending patterns. Write down everything you purchase in a notebook for one month, including bills, food, debt and credit purchases, entertainment, everything right down to the pack of gum you bought at 7-Eleven.  Sometimes, until we see it on paper, it’s hard to believe your actually spending as much as you are.

You may want to separate your fixed expenses for your additional expenses.  For example: entertainment, gifts, the extra pack of gum, vacations, etc.  This will organize your fixed bills from your additional monthly expenses.

Add up your expenses and compare them to your monthly income.  Are you spending as much as you make? More? Less?  Write a budget that works and cut down on the additional expenses and put that money towards paying off your debt. 

Make sure your take-home pay is as high as it can be

An important thing to remember is that it’s better to have the money in your paycheck than back in a lump sum tax return at the end of the year. If you are used to getting a big tax refund each year, you may want to consider increasing your deductions and not having so much withheld from your paycheck.  That way, you will get more in your paycheck and be able to use the extra money to pay down your bills.

Make a list of everything you owe
Make a list of everything you owe and the interest you are charged for each.  It’s important that you focus on paying off the debts with the highest interest first, while continuing to pay the minimum payment on your other debts. 
It’s also a good idea to move some of your high-interest credit card balances to a card with a lower interest rate. However, be aware of the fine print on any offer to transfer balances. You should be aware that some of these offers are temporary with the interest rate dramatically increasing within months. 

Watch your spending and start building an emergency fund
Cut back considerably on excess spending and put as much money as you can toward paying off your debt.  Once you review your monthly spending sheet and you see where your money is going, you can determine the maximum amount you can pay toward your debt each month.
When you get a hold of your extra expenses, you can work to lower your fixed monthly bills as well.  For example, you can try to lower your monthly household bills, refinance your mortgage with a lower interest rate, or even ask your credit card company to lower the interest rate on your card.
In addition, try to put away as little as $20 a pay period into an emergency account.  In time, this account will help pay for those unforeseen expenses that pop up at the most inopportune times, such as car repairs, home appliance repair and so on.  This way you will not have to charge these expenses when they occur.

Consolidate your debt or take out a home-equity loan
You can consolidate your debt by getting a home-equity loan.  Essentially, you are taking out a second mortgage on your house.  Many use this money for debt consolidation, college education, home improvements, and so on.  Home equity loans are usually given at a much lower interest rate than credit cards; however, it is important to note that if you default on the loan, you could lose your home.
Learn from past mistakes
The important lesson here is to learn from past mistakes. Once you get control of your debt and pay off or down your credit cards, it’s imperative that you don’t run up your balances again.