Laura writes in with the following plea for help with getting out of credit card debt:

I came across your web site today and I love it!  My husband was out of work for nearly 2 years.  We always had enough money to pay our bills so our credit line was very high.  Well, I used it, all of it.  I paid the phone, the car, taxes, one credit card paid another and so on.  I know I broke every cardinal rule but I did what I had to survive.

My husband is now working.  We are paying the mortgage company every week $500.00 to catch up.  My credit cards are over $80,000.00.

Here is my question…Now that we are getting back on our feet, how do we square up with the credit cards with out ending up in the same position?  I can give them each (all ten of them) 40.00 a month, but that won’t make a dent and I don’t even think they will take that low of an amount.

Laura, thank you for taking the time to share your story. It sounds like you and your husband have had a rough couple years, financially, but there will be brighter days ahead. My first piece of advice has little to do with finances, and more with your relationship with your husband.

I want to encourage you to fully disclose your financial situation to your husband. Perhaps you have already done so, but in your email you indicated “I used it, all of it. I paid the phone, the car, taxes…” I just want to make sure you and your husband understand the situation fully, and understand that while you did what you had to survive, we must now work together to clean it up.

Kudos to you for working to get the mortgage caught up, and for making that a top priority. So many times people in your situation make payments to credit cards before the mortgage payment because some obnoxious credit card collector is breathing down their neck. Prioritize the income you now have coming in putting things like food, shelter, lights, and transportation at the top. You’ll work around to the credit cards when you can, but those things must be paid first.

Consolidate Your Accounts

With ten credit cards you do have an uphill battle, but paying them off is not impossible. You didn’t share exact numbers/balances with me, but I understand your current budget only allows for $400 to go towards repaying the credit cards (hopefully you’ll have even more once the mortgage is caught up).

Spread across 10 cards, that $400 budget only leaves $40 per card. You might consider a consolidation loan with Lending Club to reduce the number of accounts (and minimum payments) you are required to pay each month. If you can successfully consolidate your accounts, but sure to close or tear up the cards of those that are paid off. Else you may revert back to old habits and begin using them again.

Sell Stuff to Raise Cash for an Emergency Fund

It would be great if you could build up a small emergency fund of a couple thousand dollars before starting your debt repayment plan. I worry the next emergency will lead you back to credit cards, and zap any progress you’ve made towards paying them off.

Do you have anything you could sell to fund this emergency fund? An extra vehicle? Old jewelry you no longer wear, but may have cash value? Appliances? Electronics? Consider hosting a yard sale or two. I’m not advocating you sell all the contents of your home, but this step will require an extreme measure or two to get an emergency fund in place.

The Debt Snowball

Here’s my advice for handling the remaining credit cards. Start with the traditional debt snowball. List your cards smallest to largest according to their current balance. The standard advice here is to pay the minimums on all accounts to keep them current, and pay anything extra on the smallest debt. In your situation, I’m not sure that’s possible, considering the sum of all minimum payments is likely much higher than $400.

I’d advise you to consider making a substantial payment – at least a couple hundred dollars – on the account with the lowest balance. Use any remaining funds to pay minimums on the next card or two. Hopefully, that card with the lowest balance can be paid off within a couple months, and when it is, walk that money right up the debt snowball to the account with the next lowest debt, and so on. The guys at the end of the list will probably be kicking and screaming for payments, but if you can’t get to them, you just can’t get to them.

Increase Your Income

While working this debt snowball, it would be great if you could find creative ways to increase your income. Perhaps you or your husband could work some overtime or a part-time job, or work from home in off hours. As you acknowledged, you are in a pretty big hole, so increasing the size of your shovel would certainly help get out of credit card debt that much faster!

I wish you and your husband the best on your journey to debt freedom. It will be a long road, but as someone who has just recently experienced debt freedom, I can tell you that every sacrifice is completely worth it!

Ask the Readers: Do you have any additional advice for Laura? Words of encouragement?

Credit Karma recently released its U.S. Credit Score Climate Report reflecting data for July 2009. It revealed a few interesting trends, the most interesting being the continued decline of consumer debt for those currently holding a credit card. This means that, overall, Americans are paying off more than we are spending.

Of course, this is bad news for retailers, and bad news for the overall debt-driven economy. However, our personal economies seem to be improving (assuming you have avoided a layoff or similar household emergency). I’m encouraged to find out people are paying off debt, particularly credit card debt.

In our own household we have reduced outstanding credit card debt by about 30% since May of this year. We have been 100% sold out, gazelle intense about being credit card debt free, and if it weren’t for a few family emergencies we would have closer to 50% paid off by now. The bright side is we did not accumulate any new debts during these mini-crises.

How are others doing? Here’s a look at the Credit Karma survey results from last month.

Average consumers had:

• $6,818 in credit card debt
• $193,036 in home mortgage loans
• $52,559 in home equity loans
• $14,449 in auto loans
• $26,368 in student loans

$26,000 in student loan debt? Yikes! That figure and the home equity loans stood out to me. Combined, those two categories alone represent nearly $80,000. Wonder how many people took out those loans for the tax deduction on interest, or to pay off other debt, and just ran it back up again. I also can’t help but feel bad for new graduates who racked up thousands in student loans to find one of the worst job markets in recent history. While the outstanding debt balances still seem high, I’m hopeful that the downward trend continues.

Another nugget from the survey is that Midwesterners seem to have the lowest amount of debt. Wonder what lessons from the Midwest we could learn throughout the rest of the country? I know in many Midwestern states there is a thread of self-sufficiency running through many households not felt in other parts of the country. Homes are probably more reasonably priced than in other areas of the country, too.

I’m curious to hear from you on this one. Have you also paid down debts during the recession? Do you think you would have done it otherwise, or was the negative economy a motivating factor?

Credit cards have been up to some nasty tricks lately.  They are raising interest rates with only a subtle notice, and cutting credit lines with no notice.  Angry consumers are looking for ways to consolidate their debt.  I have had some first-hand experience with both scenarios, which led to me canceling one credit card and moving the small remaining balance to another card. Those with three or four (or more) may look to other forms of credit card debt consolidation.

Pros and Cons of Credit Card Debt Consolidation Products

1. Social lending
Two years ago this would have probably been at the bottom of the list, if it made it at all.  However, social lending organizations such as Lending Club have introduced great debt consolidation loan options.  The benefits of consolidating debt with a social lending service is that you can bypass traditional bank politics to score a lower interest rate, fixed terms, predictable payments and pay off dates, and avoid many of these “gotchas” the credit card companies are currently engaged in.

2. Personal loans from small, regional banks and credit unions
Often times small, regional banks and credit unions are more willing to work with you than the larger banking institutions.  Chances are you can actually walk into a branch, look a human being in the eye, explain your situation and discuss what consolidation loan opportunities might be available. Try doing that with one of the larger banking firms headquartered in New York with hundreds of branches around the country.

3. Home equity lines of credit
While there are tax advantages associated with tapping home equity for credit card debt consolidation, I would rather save this as a last resort option.  Here’s why.  When you secure unsecured debt using your home you are putting your primary residence, your source of shelter, at greater risk.  Having a mortgaged home in this economy is risky enough, no sense piling on additional risk.

4. 401(k) loans
Borrowing from 401(k) plans used to be a popular option, back when people still had money in their 401(k).  Now days few of us have enough money in our plan to consolidate debt, and even fewer of us can assume such a risk with an unstable job market.  Remember, in most cases if your employment ends the 401(k) loan is due within 60 days, or you face early withdrawal penalties.

5. Family and friends
In general, I don’t like the idea of borrowing money from friends and family.  It changes the relationship dynamic, and often leaves one or both parties with a bad experience.  Having said that, there are times when, as a last resort, you may turn to family or friends for help in consolidating high-interest credit card debts. If you do, I suggest having a formal promissory note drawn up outlining the terms of the loan and what is expected of both parties.

Regardless of the approach to credit card debt consolidation you take, the most important thing to do is to close out the accounts of paid-off accounts once the transfers have been made.  I made the mistake of leaving a couple accounts open, just in case, after I consolidated debts a few years ago.  As you would expect, those debt balances began to creep up over time so then I was left with a consolidation loan and new credit card debt.  This is  definitely a trap you will want to avoid.

Over the last few weeks I’ve seen a frequent search term that leads people here to Frugal Dad:  “Should We Pay Off Credit Card Debt Before Having a Baby?”  I make two assumptions from the volume of hits I’ve received–there are a lot of people interested in having a baby, and there are a lot of people deep in credit card debt.  Many financial planners out there advise to have your financial house in order before expanding your family.  In general terms, I think that is pretty good advice.  However, I do not fully subscribe to the idea of holding off on having children just because you owe money.  Here are a few reasons why.

If You Wait for the Perfect Time, You May Wait Forever

So many times in our lives we put things off in the name of waiting for a better time to get started. Many people put off weight loss plans until next Monday, or next month, or maybe January 1st.  High school graduates put off immediately attending school to “experience life” through backpacking adventures, or working, or just taking a break and living at home.  But those things seem awfully trivial compared to the idea of having a child.  Children are our legacy.  Raising a child is one of the most beautiful experiences two people can share, and it deepens the love shared between partners in parenting.  Because we never know what twists and turns life will throw our way, it isn’t advisable to wait to have children simply in the name of finances.

Kids Are Not Really That Expensive

When you think about it, babies do not require as much upkeep as us adults.  Sure, they must be diapered and fed, and there are a few other baby expenses unique to having children, but babies do not eat nearly as much as grown adults.  Infants have not yet been exposed to commercialism, so their wants and desires are fairly easy to cover without spending much money.  Of course, as they grow older kids do add additional expenses to your household budget.  Hopefully by the time you are school shopping and fitting them for their first bicycle you will be doing better financially, and can easily handle any budget impacts.

Kids Can Inspire Greatness From Parents

When my wife and I decided to try for our first child some thought we were a too young.  We married at 20 years old (well, my wife was 19, a bit shy of her 20th birthday).  We were so young we toasted sparkling grape juice at our wedding!  However, we were both mature beyond our years and neither of us believed in long engagements.  After all, once you’ve met your soul mate, why delay the inevitable?

I had just started an entry level call center customer service job when my wife and married, and I quickly recognized moving up in the corporate world would be more difficult without returning to school to finish up my degree.  I put school on the back burner, and instead spent the first year or so of marriage just enjoying being married.  When my daughter was born everything changed. It was a reality check that led to a wake up call, of sorts.  Suddenly I realized there was more at stake than just my wife and I surviving, financially.  I wanted nice things for my daughter.  I wanted her to have an easier path than I did (although thanks to the hard work of my mom and grandparents, I had it pretty good, too).

So the summer after she was born I enrolled in a local university, changed majors to business, and embarked on a long, challenging pursuit of a college degree.  It was probably the worst timing possible considering I had a wife and newborn daughter at home, but I was not going to put off the pursuit of my dreams any longer.

When deciding whether or not to start a family, do not allow financial issues to completely dissuade you.  Give more consideration to the partner you have chosen to share this responsibility.  Give more consideration to readying your home for a child.  Do not allow money to control your destiny, and the destiny of your children.