Credit Basics

Intense panic accompanied by stifled screams and helpless flailing is a monthly ritual for people drowning in debt.

As a cliché, it is, unfortunately, all too familiar. The Federal Reserve announced that as of June 2006, Americans are carrying $806.9 billion in revolving debt. That does not include mortgages and loans for such things as autos, mobile homes, education, boats, trailers or vacations.

But it's never too late to turn things around. First and foremost, be committed, says Howard Dvorkin, founder of Consolidated Credit Counseling Services Inc. and author of "Credit Hell: How to Dig Out of Debt."

"People have to want to get out of debt. They aren't going to get out of debt just to get out of debt, they have to want it."

Dealing with debt

Here's an emergency plan to help you do just that. 5-step emergency plan:

1. Establish your bearings.
2. Chart your path.
3. Put the plan into action -- the dreaded "B" word.
4. Pay your bills.
5. Add stability to your credit file.

1. Establish your bearings.

Once you're absolutely, unconditionally prepared to do whatever it takes to pull your credit rating out of a nosedive, you're ready for stage one.

The best way to assess the condition of your finances is by pulling your credit reports.

Learn how to read your report. It can be illuminating. According to Dvorkin, "People tend to underestimate rather than overestimate -- probably about 20 percent lower than what they actually owe. The average debt is $9,000: 20 percent of $9,000 is $1,800 -- so that is a pretty significant fluctuation for most of us."

2. Chart your path.

How far behind in your payments you are can drastically alter your plan of action.
"People have a lot of options," Dvorkin says. "Unfortunately, they don't realize all their options. Bankruptcy isn't the first option; it's the last option. The first is to juggle the household budget."

3. Put the plan into action -- the dreaded "B" word.

Call it a budget, spending plan or resource allocation; it all comes down to the same thing: "Stop spending," says Sweet. "You can't say 'I'm in over my head' and keep living the same lifestyle. You have got to figure out what you can cut out of your life."

This is the mantra of credit experts. "Stop spending; use cash instead of a credit card," Dvorkin says. "Most people's budgets are 15 to 20 percent fat. You don't need a $4 latte at Starbucks every day. People can do without certain things -- do you need 200 satellite channels? Can you get away with 100?"