Transition Guidance

Money in the bank allows you to make choices for the future. Being in debt takes your choices away.

Debt management experts in both the military and civilian worlds offer some basic principles to keep your financial house from crashing down:

Make a commitment to managing your money. Dedicate time - an hour or several hours each week, depending on how complicated your finances are - to keeping detailed records and reviewing your spending.

Develop a budget. For one month, record all your expenses. At the end of each month, take a careful look at those expenses and tally up where your money went by category: food, clothes, rent, utilities, et cetera.

Stick to your budget, cutting expenses wherever possible. Remember, spending $5 less each day saves you more than $1,800 in a year. Don't be too Spartan, or you'll never succeed. Give yourself some leeway for a few splurges, depending on what you can afford - maybe a movie or dinner out once a month.

If your consumer debts - everything for which you owe money, excluding your mortgage - equal or exceed 20 percent of your annual take-home pay, stop using credit. Now! Your debt tally should include car payments, credit cards, military exchange credit plan, other installment plans and department store cards.

If you find it's time to swear off credit cards but can't bring yourself to close the accounts, freeze the cards. That makes it more difficult to use them on impulse. You may feel more comfortable knowing that they can be frozen and thawed repeatedly, if necessary, without damage.

Figure out how much of your pay, if any, you can afford to apply to debt. But first, put some money into savings for emergencies, so that you don't have to dig a deeper hole if an unexpected crisis arises. Money in the bank, as well as other investments, allows you to make choices for the future. Being in debt takes your choices away.

If you continue to use credit, don't carry a bunch of cards. Use one of the major ones, such as VISA or MasterCard, that most stores will accept. Keep a constant tally of all charges close to where you keep the cards.

Think twice before buying anything with a credit card or a loan. Do you really need it right now?

Choose and use your cards carefully. Make sure you're not paying late fees or charges for going over your credit limit.

Transfer balances to a lower-rate credit card. Close accounts carrying higher rates so you won't be tempted to use those cards again, unless they have a feature you need to keep for particular circumstances, such as travel insurance for trips out of town. In that case, freeze them. Avoid cards that charge annual fees unless their benefits outweigh the cost.

Pay the minimum required on all your credit cards, including any low-interest accounts to which you have transferred balances, then pay an extra $50, or whatever you can afford, on the bill that carries the highest rate. Generally, your goal should be to pay off that card first, although a small payment that erases another balance can be a powerful reward.

Keep an eye on overdraft protection for your checking accounts. It can put you in as much debt as your credit cards.

Don't borrow on a potential pay raise, a potential tax refund or any potential windfall.

Don't borrow from one credit card to pay off another.

For added motivation to stop charging, calculate the interest you're paying each month on credit card and other consumer debt. Think about what you could have done with that money.