Sometimes, we fall into the trap of only paying the minimum balance on our credit cards, thinking it’s doing no real harm to our pocketbooks. While 48 easy payments of $15 may seem like a good idea at first glance, a closer look shows us just how much is dedicated to principal, and how much of our money goes to interest – or directly into the creditor’s pocket.

Paying the minimum payment drops your balance due, but thanks to compounding interest, you will end up paying for a long, long time if you pay only the minimum. Just how long will it take? Here’s an example:

Say you have a credit card balance of $3,000, with an interest rate of 17 percent. If the minimum amount to be paid each month is 3 percent of the total balance or $15 (whichever is higher), it will take you 158 months – or more than 13 years – to pay off your debt. In addition, you’d pay a whopping $2,418 in interest charges – almost double your original balance!

Don’t believe us? Use this credit card payment calculator to determine how long it will take to pay off your debt, paying just the minimum amount due: http://www.creditcards.com/calculators/minimum-payment.php

Shocking, isn’t it?

First of all, congratulations! Settling your debt is a huge step forward in the journey to financial freedom and one that you should be very proud of. Taking responsibility for the money owed and working to reach an agreement with creditors is hard work, but one that will pay off in the long run.

However, debt settlement doesn’t come without its downsides. Although less harmful than bankruptcy, debt settlement will lower your credit score and impact credit history. Eventually, you’ll be able to build your credit score back up – just make sure you’re using credit wisely, and not living beyond your means.

The Columbia Daily Tribune has this to say about debt settlement in a recent article titled “Rebuild history in three steps”:

You have done the most essential thing you could do to impress a lender. You have paid what you owe. Yes, you settled an account, but you took the time to hammer out an agreement that was satisfactory to you and the debt collector. So, even though you show a settled account [on your credit history], that’s preferable to an unpaid charge-off. Even lenders realize everyone makes mistakes.

So how do you begin rebuilding your credit after debt settlement? We suggest the following:

• Change Your Habits: What good is getting out of debt if you’re going to repeat the same financial blunders? Seek help from financial advisors who can help you examine your income and expenses, and make a budget that suits your lifestyle. Be sure to factor in a savings account, in the event unexpected expenses arise.
• View Your Credit Report: You can’t get where you’re going if you don’t know where you’ve been – and the same is true for rebuilding credit. Sites like AnnualCreditReport.com allow you to view and track your credit score each year, so you can see the progress being made.
• Pay On Time, Every Time: Actions speak louder than words, especially to banks and creditors. To truly prove you’ve reformed your bad habits, make sure you pay every bill – mortgage, car loan, electricity bill, etc. – on time, every time. Avoid putting anything on credit cards, but if you must, try and pay the full balance at the end of every month. Above all else, be sure to pay yourself – it’s the most important investment you can make.
• Investigate Secured Loans and Credit Cards: If you must take on a credit card or loan, secured loans are the way to go – and sometimes the only way to qualify. “Secured” simply means that your savings are being held in a special account as collateral for the line of credit. This money will be returned to you once the debt is paid or the secured credit card account is closed. Typically, the line of credit is very small at the outset, but your good repayment performance may mean credit line increases in the future.

As the old adage goes, an ounce of prevention is worth a pound of cure – and it’s definitely true when it comes to getting out of debt. The best way to get out of debt is to ensure you don’t get in it in the first place, but there are practical ways to save money and reduce debt even if you’re already “in the red.”

Sure, skipping your daily or weekly latte is a great way to cut back on unnecessary expenses, but there’s much more to it than that. We really love this quote, from U.S. News & World Report: Saving money is like a magic show: a sleight of hand (subbing chicken for steak), a vanishing act (eliminating your landline), and materializing an object out of thin air (finding free college money).

So what else can you put into your “bag of tricks” to save more and spend less? Use these tips from the article “Smart Money-Saving Tips You Need Now” to improve your personal financial health:

Food: Cooking for yourself can be fast and easy, as well as surprisingly cheap. Try online recipe finders for meals that use what you already have in your fridge. Make enough for a few days, and then use the leftovers in sandwiches for work the rest of the week. Eating at your desk could save you more than $100 a month.

One of USOBA’s favorite sites for creating fun at-home meals is SuperCook.com, where you can input ingredients – whatever you have at home – and receive recipes that fit what’s in your cabinets, so you don’t have to spend money on additional groceries.

Transportation: If going to the gas station makes you cringe, make sure your car is in top shape with a tune-up. Fixing any serious maintenance problems can improve your gas mileage by as much as 40 percent. Becoming a better driver can help you save money, too. Smooth braking and acceleration, as well as slower driving, will improve your mileage and keep money in your wallet.

Additionally, USOBA recommends these top ten tips for improving your vehicle’s fuel efficiency from Edmunds.com.

Energy: You’ll feel better about your monthly utility bills, and also the environment, when you take small steps to cut your energy use. Start by replacing your incandescent light bulbs with compact fluorescent lights. Though CFLs cost more at the store, they don’t need to be replaced as frequently and can save your household hundreds of dollars over their life spans.

Budgeting: It pays to educate yourself so that you can make informed decisions about budgeting, investing, and other aspects of your finances. Simple steps like automating your bill payments can help you avoid late fees and damage to your credit score. Ken McDonnell, director of the American Savings Education Council, recommends that you start by cataloging every expense you incur in an average week to learn exactly where your money goes. The results may surprise you.

Entertainment: And even though saving money is serious stuff, you can still have fun on a tight budget. Try renting movies and cozying up on the couch with friends or loved ones, and get inexpensive, designer-like clothing worth bragging about. When traveling, picnic lunches can be fun and tasty, and if your sense of adventure dictates a vacation abroad, look a little farther afield, to where the dollar is doing better.