If you've ever opened up your credit card statement and been shocked at the balance staring back at you, you're not alone. More and more, Americans are stretching their credit to the max. The trend toward using credit cards to pay for regular expenses such as utility bills, grocery bills, gas, and fast food illustrates the increased dependency on credit. And credit cards are far from the only type of debt. Student loans, mortgages, IRS debts, and other indebtedness can leave you wondering how you can stay in control.



Know what you spend. When using a credit card, it's quite easy to spend much more than you realize. Even small transactions add up rapidly into large balances with high interest rates. For this reason, it can be useful to keep a transaction register for your credit card similar to the one you keep for your checking account. Write down each transaction and add up your spending. If you want to make sure to spend no more than a certain amount per month or in total, write that amount in as a balance just as you would note the balance in your checking account. Subtract the transactions you make from that “balance” up to the full amount and then stop using the card until you've paid the amount back down. To make this work, you may need to take the card out of your wallet and put it away somewhere.

Know what you are really paying. How much debt are you comfortable with carrying? If you are unsure, ask yourself how much interest you are wiling to pay each month. Then calculate how much debt you can have at that level of interest by taking the number you've come up with and dividing it by the decimal form of the interest rate you're paying. For example, if you would like to pay no more than $25 in interest each month and your interest rate is 12.9%, divide $25 by .129. (For 9.9%, the decimal form would be .099. Don't forget to put in the extra zero for single digit interest rates.) You'll find you should carry no more than about $195 as a balance on your card each month to stay at this interest level.

This rule also applies when shopping for a home. The price tag on the house itself is only the beginning. Consider the total amount you will actually have paid by the time you own the home free and clear. The way interest is calculated for a mortgage is somewhat complex, so ask your loan officer to add it up for you before making a purchase decision. As a general rule, you should never take on a mortgage payment that is more than 30% of your income, and certainly no more than you get after taxes from a bi-weekly paycheck.

Remove the option to use your credit card if you need to. If you've tried several methods of controlling your credit card spending and find that you lack the discipline to stick with the plan, you may need to hide or destroy your card. Hiding the card from yourself may work if you can put it somewhere that keeps you from using it. If you find yourself frequently retrieving it and using it despite the fact that you had put it away, then it may be time to destroy your card to curb your spending. One solution is to put your cards in a bowl and fill it with water. Freeze the bowl and the cards, that way you have to chip away to get to your cards… and hopefully any passing urges will be gone by the time your cards are thawed out.

Controlling your debt begins with being aware of it. Everyone finds it easy to pass the credit card across the counter, but when you know what that swipe will actually cost you, you're more likely to think twice about reaching for a card.