Ask Doctor Debt

WASHINGTON, DC. (WUSA) -- Bankrate.com says a new trend is taking hold.

Consumers are using their credit cards less, and their debit cards more as they struggle to get out of debt.

Chris Wunder with AskDoctorDebt.com shares tips on what you can do to manage credit card debt, how to avoid falling into debt in the first place, and tips that will help you build a good credit rating.

He says Ask Doctor Debt is a free resource for consumers with credit and debt questions. It features a comprehensive, searchable database with answers to most frequently asked questions people have. It also gives you the option to submit your own questions as well. The site is loaded with financial literacy resources and links to help you figure out how to deal with the credit or debt solutions you might find yourself in.

So, what are the warning signs that you've taken on too much debt? The biggest indicator is if you're spending more than 20 percent of your take home pay on debt payments and personal loans, you're headed for financial trouble. "Now in this case, I'm not talking about your mortgage, groceries or utility bills, but rather things like credit cards or student loans," says Chris.

He says, "The number one thing I can tell you is that before you do anything else, you need to stop the financial bleeding, so to speak. If you haven't already, you need to start with the basics - track your monthly expenses and create a budget. Anything that is not a necessity for you and your family needs to take a back seat."

Credit cards are a big issue right now. This is one of the biggest impacts the recession is having. Suddenly, you aren't able to pay off the entire balance each month. Or maybe you're even having trouble making minimum payments. Once that happens, the late fees and penalties start piling up.

You need to proactively communicate with your creditors before you find yourself in that situation. A creditor is going to be much more receptive and willing to work with you if you're up front about your financial situation. That's going to give both you and the creditor time to evaluate all the options; and hopefully, come to some kind of realistic solution that both parties can be satisfied with.

Don't avoid calls or ignore letters. Respond right away, and once again, lay everything out on the table for the collector when it comes to your financial situation.

Negotiate. You can negotiate especially in this economic environment. One trend is that collectors are working out more long-term payment plans and reducing the amount of debt owed depending on what the consumer can afford to pay back right away.

For college students, it is important for college students and young people to not just assume credit card debt is something they'll always have to budget for, like paying their utility bill or mortgage each month. Credit card debt should not be a planned budget item, but rather something that comes out of an emergency need. This can happen if consumers exercise restraint when comes to purchasing non-essential items like electronics or clothing.

Tips on building good credit ratings. Pay your credit card bills on time, try to pay more than the minimum amount, and pay early. That's an easy way to boost your credit score. also, having some long-running, open lines of credit with clean payment history helps boost your credit score, so don't be afraid to leave them open even if you don't use them very often.

If you do decide to open a credit card account, next to the annual percentage rate, the "balance calculation method" is the most important factor to consider when signing up for a new credit card. It, along with the APR, is what determines how much you'll be paying in finance charges.

Top five ways to avoid falling into debt.

Create a budget and stick to it. Keep your credit card and credit line balances low.

Watch how much money you spend. How much is too much? Your credit obligations should be limited to no more than 20 percent of your monthly income.

Learn to save money. Put aside some extra money during each pay period, no matter how little the amount may be. Five or $10 dollars each month can add up.

Use debit cards. They a great way to monitor your spending.

Get educated through credit counseling. Non-profit organizations like National Foundation for Credit Counseling serve as knowledgeable personal resources for consumers looking for credit and debt advice.

Top five ways to get out of debt.

Make a personal assessment. The first step to getting out of debt is to honestly assess your situation. Gather all your bills. Write down the due dates, balances and interest rates for all credit cards so that you can see which debts are costing you the most.

Learn from past mistakes. Once you've worked through your current situation, it's extremely important to learn form any past mistakes to avoid repeating them in the future.

Make a plan to get out of debt. Create a budget. Watch what you spend. Try paying with cash or using a debit card for everyday expenses. Careful budgeting and monitoring can help you live within your means.

Cut back on credit cards. Reduce the number of credit cards you use. Avoid using the credit cards that have high interest rates. Always try to pay off the balance every month. If that's not possible, pay off more than the minimum required by the company.

Don't hide, and don't avoid phone calls from creditors or collection agencies. If you communicate with them, they can help you figure out a realistic option, such as negotiating the amount of debt owed or creating a payment plan.

Information provide by AskDoctorDebt.com