It’s not impossible to pay off your consumer debt

By Sean Teehan
Globe Correspondent / March 6, 2011

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It starts small: charging a set of DVDs or using plastic to buy lunch at the local sushi place. The credit card bill comes, and you make the minimum payment. You charge more lunches, more DVDs, and maybe a new TV to watch them. The bill comes in, the minimum payment goes out, and the cycle starts again.

Before long, you’re up to your eyeballs in debt.

Getting control of spending and debt can seem hopeless, particularly after adding obligations such as mortgages, student loans, and car payments. But it’s not, financial specialists said. With discipline and determination, consumers can cut their debt and regain their financial health.

“A lot of people think that there’s this magical secret out there that somebody knows,’’ said Bob Hurley, a fee-only investment adviser at Stoddard Management Co. in Rockland. “The long and short of it really is you have to spend less than you take in.’’

Any debt reduction plan should begin with a clear, complete picture of what is owed to whom, according to financial advisers. Go through bills and set up a spreadsheet. Enter the creditor, the amount owed, and the interest rates. Then add it up.

That’s how Melanie Charron, 30, of North Attleborough, got a handle on $10,000 in debt that she ran up on three credit cards. She sat down, tallied her spending, and determined that she had to stop buying on impulse.

“I was getting all the calls from the creditors and I said, ‘How did it get so bad?’ ’’ she recalled.

Once you identify the problem, you can attack it, financial specialists said. You might start with high interest debt, such as credit cards, which typically charge rates of about 14 percent, according to

High rates can consume household finances with a speed that catches people by surprise — particularly if they make minimum payments. Paying the minimum can stretch out debt for decades. Charron’s $10,000, for example, would take 25 years to retire said Lynnette Khalfani-Cox, author of “Zero Debt: The Ultimate Guide to Financial Freedom.’’

Bigger payments cut debt more quickly, financial advisers said. So does lower interest. With competition among credit card companies, many will negotiate lower rates to hold onto a customer. If they won’t, switch to a lower rate card, financial advisers said.

“You’re going to get the best bang for your buck by paying back the highest interest debt you have first,’’ said Hurley.

But not everyone agrees that attacking credit card debt first is the best approach, since high interest charges can extend the time it takes to make a significant dent.

Khalfani-Cox, for example, advises people to focus on debts they worry about most. If high balances bother someone, then start with loans on which the most is owed. If someone else wants to pay off as many loans as possible, start with the lowest balance.

The most important thing is to feel that efforts are paying off, Khalfani-Cox said. “It’s disheartening for people to work at a goal and use a strategy that gets them very little results.’’

Charron, a preschool teacher, opted to start with the highest dollar amount. But it required more than spending control. She took a second job at McDonald’s, and just recently paid off the last of her credit cards.

“It was a huge accomplishment,’’ she said.

The largest debt for many consumers is their mortgage. As with credit cards, homeowners can cut the debt by making larger monthly payments and lowering interest rates, in this case through refinancing.

But before refinancing, homeowners should consider how long they plan to stay in their houses, and how long it will take for the monthly savings to cover closing, origination, and other costs. If you plan to move before the savings can cover expenses, don’t refinance.

Based on current mortgage rates, only those with interest rates of 6 percent or higher should consider refinancing, said Martha Payne, a senior financial planner at Baystate Financial Services in Boston.

Ultimately, financial planners agreed, the key to cutting debt is personal responsibility. Lower interest rates won’t do much good if people spend more than their income. One way to get a handle on spending, said Lea Ann Knight, principal at Garrison/Knight Financial Planning in Bedford, is to pay with cash, rather than debit or credit cards.

Charron said she’s learned to think twice before making a purchase. She no longer splurges on new clothes just for the sake of fashion, only buying if she needs a new dress, shirt, or shoes. She passes up the latest fragrances from Victoria’s Secret, too.

At times, she said, she misses the amenities of her free-spending life. But the peace of mind that comes from having her finances under control is worth it.

“I don’t want to be where I was before,’’ she said.

Sean Teehan can be reached at