Stay Out of Debt

Now comes the hard part—actually sticking to the budget you've created and watching what you spend. Keep your credit card and credit line balances low. Determine your limit on each account and try to keep your balance below 50 percent of the limit. This will prevent your credit score from being docked and will help you avoid over-limit fees.

Watch how much you spend.

How much is too much? Well, when you use our budget calculator, you'll know the amount of money you have left for spending after you pay for necessities. Your credit obligations should be limited to no more than 20 percent of your monthly income. Compare your total debt payments (auto loan, credit cards, student loans and all other consumer debts—but not rent or mortgage) to your take-home pay for the month. Do not take on more debt if it means exceeding 20 percent of your income.

Learn to save money.

Try to put aside some extra money during each pay period, no matter how little that amount might be. Even $5 or $10 each month can add up surprisingly fast. And most importantly, you'll establish a good habit that will help you with your finances while creating an emergency fund.

Talk to your human resources professional about having money automatically withdrawn from your paycheck. Contact your bank or credit union for help establishing a solid savings plan for holiday purchases or for your budgeting. Also, debit cards are a great way to watch your spending. Debit cards offer the convenience of credit cards, but unlike credit cards, debit cards only allow you to spend money that is already in your account. Some debit card issuers offer a feature where your purchases are automatically rounded up to the next whole dollar and the extra amount is deposited into an attached savings account for you.

Get free credit counseling.

If you would like information on credit consolidation or credit counseling, Ask Doctor Debt recommends you visit the National Foundation for Credit Counseling Web site.

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