ABA Family Legal Guide

Consumer Credit

Debt, Debt Collection, and Credit Repair

How Much Debt Can You Handle?

So what do I do when I see one or more of these danger signs?

The first step is to slow down on the use of credit. If you are going shopping, take only the one credit card that you will need, or try using cash instead of credit cards. Cut up excess credit cards and return them to the creditor, asking that the credit bureaus be notified that you have closed the account. It is important that your credit report reflect that the account was closed at your request rather than at the creditor's demand.

Next, find out where your money is going by keeping track of family purchases for just two weeks. If you start out the day with $30 in cash and end with $5, where did $25 go? Do this every day, and add any credit card slips from credit purchases during the two weeks. Then have a family conference to discuss how those outflows can be reduced. Now is the time to begin financial training for teenagers and even younger children.

See where you can cut spending, so that you can free more money to meet your monthly bills. Adopt the industry approach of zero-based budgeting. Show a real need for any expenditure above zero. In addition to cutting cash outflows, you may be able to improve cash inflows. For example, a spouse or teenager might take a part-time job.

Once you have a good understanding of where the money is going, you may find it useful for the family to prepare a cash budget that will show the highest monthly payments you can afford on your debts.