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.

If you’re like us – or any sensible person – you hate feeling cheated and having to pay more than you originally bargained for. We like to call it “small print anxiety” – a fear of the hidden fees and charges not disclosed transparently by creditors.

Thankfully, there are questions to ask and things to look out for that can help you avoid small hidden fees that can really add up. Here is a list of some of the most common “small print anxiety” fees – and tips on how to avoid them:

• “Free” Checking Accounts. Some so-called “free” checking accounts often require a minimum number of debit card transactions per month, or a minimum monthly account balance – and if these items aren’t met, you’re charged a fee. Make sure your banker explains all requirements in detail, and if you aren’t likely to easily meet the requirements, consider making the switch to a different type of account if your penalties are likely to outweigh the cost of a “non-free” account.
• Late Fees. It’s hard to get out of paying late fees, but if it’s a one-time, first-time or extenuating circumstance, most entities will work with you. Call the customer service representative and politely ask that the fees be removed for an unfortunate oversight on your part. If they refuse, consider switching to a competing company – in most cases, they’d much rather have your continued business than your late fee.  Be especially careful with late fees, as a late payment on one account lawfully enables other creditors to raise your interest rate.
• Interest Hikes. Variable rate credit cards and loans have gotten thousands of consumers into hot water in recent months, with some credit card interest rates shooting upwards of 25 percent. Contact your creditor or the Better Business Bureau if you feel your rate hikes are unfair or unethical.

However, thanks to the Credit CARD Act of 2009, there are limits on interest rate increases. Now, interest rate hikes on existing balances are allowed only under limited conditions, such as when a promotional rate ends, there is a variable rate or if the cardholder makes a late payment. Interest rates on new transactions can increase only after the first year, and significant changes in terms on accounts cannot occur without 45 days’ advance notice of the change.

Of course, the best way to avoid hidden fees is to uncover them before signing on the dotted line. Be sure to read every word of every page in every contract – including loan agreements, credit card applications and monthly bills – even if it takes a while. Don’t be afraid to ask for clarification before you sign.

Another option is to contact your creditors to request that they reduce or eliminate some fees, adding a little more cash and a little less stress to your daily life.  The better your payment history, the more likely they are to make concessions.

So you’ve gotten into debt – trust us, you’re not alone. The average American has more than $15,000 in credit card debt, and today’s struggling economy leaves many relying on credit just to meet basic needs.

Often, creditors are made to look like the “bad guys” – demanding payment from consumers without regard for their unique circumstances. The truth is, it’s up to the consumer to manage their personal finances, not the creditors. More than 36 percent of consumer debt is tied up in credit cards (with the remaining 64 percent in loans, such as car loans, student loans and mortgages), and if creditors bent the rules for everyone, they’d be out of business. However, there are steps you can take to show creditors that you are trying to work with them to pay down your debt in a way that meets both of your needs.

• Be proactive. Call your creditors and explain your circumstances. Taking initiative and being honest with creditors – while agreeing to pay what you can and developing a timeline to return to full repayment status – can go a long way. Don’t wait until your debt is so heavy that creditors will be reticent to deal with you – showing your history of on-time, full payments will help your case.
• Create a mutually-beneficial repayment plan. Often, creditors will accept a lump-sum payment or altered monthly payment plan. A lump-sum payment is when you pay less than the full amount owed – commonly achieved through debt settlement. An altered monthly payment plan is where you agree to make monthly payments different than what’s listed in the original repayment agreement (such as a lower minimum installment or with a fixed, lower interest rate) until the account is paid. If you choose this option, be sure the creditor agrees to remove any negative statements from your credit report upon completion of the payments.
• Know your rights. Collections professionals are trained to use complex legal jargon and intimidating language to get you to pay the full amount owed under the creditor’s terms, not your own. Know that creditors cannot have you thrown in jail, threaten you unethically, contact you between 9 p.m. and 9 a.m. or contact your friends, family and neighbors.

 If you don’t feel comfortable negotiating with creditors yourself, or find that your efforts are not successful, consider the help of a professional debt settlement organization – just be sure you do your research to find one that will act with your best interests (and the law) at heart.

Often, when consumers amass large amounts of debt they feel there is no way to relieve the burden. The weight of unpaid bills and overdue balances becomes unbearable, leaving them with seemingly only one option – bankruptcy. However, even if dealing with very large amounts of debt, there are some simple things you can do to cut expenses, increase savings and better manage your money.

1. Make meals to save money. Eating out is exponentially more expensive per serving than doing your own grocery shopping and preparing meals at home. In fact, a study done by The Simple Dollar gives a great picture of just how much money can be saved eating in versus dining out.
2. Pay yourself first. The best way to get out of debt and stay that way is to start a simple, consistent savings plan. Ideally, you’ll want to have at least three months’ expenses saved up at all times, but start slow and work your way up. Before you know it, you’ll have a little cushion to help cover unexpected expenses.
3. Create a budget – and stick to it. Track your income and expenditures for a whole month, down to the last penny. How much did you spend on necessities – like mortgage, car payments and groceries – versus luxuries, like nights out, wardrobe additions and entertainment venues? Use an online budget calculator to help better manage your money, and remember the old adage “If you fail to plan, you can plan to fail.”

There are a number of professional resources out there to help you better manage your money and avoid bankruptcy. Depending on your debt level, credit counseling, debt consolidation or debt settlement may be a viable option to get your finances out of the red and into the black.