Reduce Your Debt
CA Commission on the Status of Women
www.women.ca.gov Understand Your Debt
Not all debts are equal. Knowing what kind of debts you have is an important
first step. For example, home and school loans may reduce your taxes,
increase your equity, and enable you to achieve greater wealth and earning
power. Other debt, such as credit card debt and car loans, typically charge
high interest rates and take money away from your future wealth.
"Safety and Soundness" Credit enables you to make purchases without using cash. However, convenience
has a price – interest. And the longer it takes you to pay off the credit balance, the
more interest you pay. To reduce debt, stop borrowing more than you can afford
to pay off every month.
CA Department of Financial Institutions
www.dfi.ca.gov Signs of • You make late payments, miss
payments, or juggle payments
Financial Trouble • Your total credit card debt is more
In today’s economy, millions of
than your total monthly income
Americans are unable to cover their
basic living expenses, let alone pay • You don’t have any savings and
off debt. Financial difficulties may are unable to save money
lead to greater use of credit cards, • You are only able to pay the
cash advance loans, or other high minimum on a credit card for two
cost options. Be careful – this may consecutive months
E&O Fin Lit 002 (NEW 7/11)
lead to a cycle of debt from which it
CA Department of Corporations • You or a family member can’t
will be very difficult to recover.
1-866-ASK-CORP stop overspending. (For advice
(1-866-275-2677) If any of the following apply to you and support, go to Spenders
www.corp.ca.gov or your family, you may need help: Anonymous www.spenders.org )
To request additional copies of this publication,
please call Toll-Free or e-mail firstname.lastname@example.org
Follow us on Twitter @CAFLM "Safety and Soundness"
for additional financial literacy information
5 Steps to Get Out of Debt Financial Difficulties
If you or family members frequently
spend more than you can afford,
1. Make a Budget: 3. Pay Off Debt: Note: Other websites or vendors may
worry about making ends meet, fear
List all your income sources, expenses, Whenever possible, pay off the entire offer a “free” credit score; however,
opening monthly bills, or stress when
and debts and calculate the minimum balance of your credit card(s) and other such offers typically require some kind
applying for a loan – you need help!
amount you must pay each month. debts each month, or at least pay more of purchase or monthly fee. Don’t let fear or embarrassment
Keep track of every single purchase for than the minimum monthly payment. prevent you from seeking help – if
a month - coffee, parking, etc. This will
Remember, interest rapidly increases
5. Improve Your you cannot pay your bills, contact
creditors before payments are due.
help identify opportunities to reduce
your spending, making more available
the total amount owed. Credit cards Credit Score: Be persistent– a few phone calls
typically charge high interest rates, so • Pay bills on time. If you miss a can make a big difference! Ask
to pay off debt. Make a budget, then your creditors to waive fees, reduce
making only the minimum payment payment, get current and stay
stick to it. the interest rate, or help you create
means you will pay far more in interest current.
a payment schedule that will work
than if you were to make a larger (or • Manage your credit responsibly. within your budget.
2. Prioritize full) payment. If possible, make one In general, having credit cards
Your Debts: additional payment per year on large and installment loans (and paying If You Have Credit Problems
Evaluate which debts to tackle first. loans (like those for cars and houses) timely payments) will raise your For assistance with credit problems
You might begin by aggressively – this can significantly reduce your credit score. and creditors, go to National
interest costs over time. Foundation for Credit Counseling
paying off the debt with the highest • Keep balances low on “revolving (NFCC) www.nfcc.org or call
interest rate, while making smaller credit” accounts (those without a Toll-Free 1-800-388-2227.
payments on debts with smaller 4. Find Out Your fixed number of payments, such as
interest rates. When the debt with the
highest interest rate is paid off in full,
Credit Score: gasoline or retail store credit cards). If You Are Facing Bankruptcy
Your credit score is used by lenders to • Don’t move debt around. Opening Recent Federal law requires
apply the same aggressive payment
determine whether you qualify for a new cards with low introductory mandatory credit counseling
strategy to the debt with the next before you can declare bankruptcy.
specific loan, credit card, or financial rates to move large balances from
highest interest rate, and so on. Go to http://www.ftc.gov/
service. The better (higher) a credit accounts with higher interest may
However, if interest rates on your debts score, the lower the interest rates be risky. If you don’t pay the balance debt.shtm to download “Before
are similar, you may want first repay the charged on current and future loans. off in full before the introductory You File for Personal Bankruptcy:
debt with the lowest balance owed. rate expires, you may end up paying Information about Credit Counseling
Your credit score is based on the even higher interest rates later. and Debtor Education.” The U.S.
Paying off even a small debt provides
amount of credit you already have, Opening and closing cards can also Department of Justice Trustee
a sense of accomplishment that can
your debt-to-income ratio, and your negatively affect your credit score. Program approves organizations
energize you to tackle larger debts.
payment history. For a fee, you can to provide mandatory counseling
get your credit score information at • Re-establish your credit history if you before you can declare bankruptcy
www.myfico.com have had problems. Open a new and mandatory debtor education
account and pay it off on time - this after you declare bankruptcy. Go to
will raise your credit score over time. www.usdoj.gov/ust/eo/bapcpa/