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Stop Spending, Start Saving

Many people think it’s stressful to keep an eye on spending, especially as we enter the busiest shopping time of the year. But being frugal can reduce stress if unexpected financial setbacks occur.

Saving in advance for those moments can range from getting pennies back by clipping coupons to banking work bonuses and tax refunds. The key is to get in the habit of saving, no matter how small you start.

U.S. family debt
The Federal Reserve reports that consumer debt is a record $2.17 trillion, and that average Americans owe more than they make. ABC News reports that, in the past decade, average family income rose 9 percent while credit card debt surged 81 percent. In a worldwide survey by Kiplinger’s Personal Finance magazine, 22 percent of U.S. consumers say they had no money left after paying basic living expenses. Only Portugal had more cash-poor respondents, at 23 percent. The best savers: Thailand, Indonesia, and Spain.

How to avoid debt
• Baseball isn’t the national pastime anymore; it’s been replaced by shopping. Stay out of stores except to make planned and necessary purchases. Make a list before launching the holiday gift hunt so you won’t be enticed to buy impulse items.

• Try to stay home just a little more and identify ways to have fun without spending a lot of money, unless you are into making purchases online or by telephone. If you are considering a purchase this way, use the three-day rule: think about it for three days before buying. And pay for everything with a cash-back rebate card.

• Try to keep your debt-to-income ratio at 36 percent or lower, suggests Bright Spots, the customer newsletter of financial giant ING Direct. Calculate this ratio by dividing your monthly debt obligation by your monthly income.

• Carry a maximum of three credit cards and do your best to keep the monthly unpaid balance at zero. If you can’t do this, set an absolute limit you will not exceed—perhaps $500. Nationally, the average card balance is $12,338, according to Kiplinger’s.

• Pay down balances with higher interest rates first, make more than the minimum payment, and check the interest rate monthly. Because of something called “universal default,” if you pay late on one bill your interest rate could go up on other credit card accounts, while dropping your credit score by 100 points.

• Check your credit report once a year. The U.S. General Accounting Office says 70 percent of credit reports have some sort of error.

More no-debt strategies
Author David Bach, a personal-finance guru, urges people to quit taking cash out of their homes using short-term variable-rate, home-equity loans. Interest rates are creeping up and home prices are weakening in many areas, he reports.

If your household may go from having two incomes to one—perhaps your spouse wants to go back to college—practice living on one income for six months to see if you can, Bach says. Also, build up an emergency fund to prepare for a layoff or other loss of income.

Give up your “sacred cows,” those little extravagances that you refuse to forego, for a month to reach your goals, suggests Steve and Annette Economides, founders of The Home Economics Newsletter. If you are comfortable enough giving them up for 30 days, consider giving them up for good. What’s your sacred cow? Premium cable channels, bottled water, Sunday brunch at the state park?

Avoid using automated teller machines, they also urge. Instead, to take control of the most common areas of overspending—food, recreation, and clothing—withdraw predetermined amounts of cash from each paycheck. Putting a set amount of cash into three separate envelopes minimizes overspending, the authors say.

Most important of all, set up a budget and stick to it. A budget will help you discern between a need and a want.


The Better Business Bureau of Louisville, Southern Indiana, and Western Kentucky is offering free kits with up-to-date information on how to avoid debt, get out of it, avoid pitfalls, as well as securing, building, and repairing credit.

For a free CD-ROM, send an e-mail to with “Credit Clues Kit” in the subject line, with your name and address. For a hardcopy kit, you can call (502) 583-6546.


To find more resources on finances and debt, go to Financial resources.

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