A surprising number of people don't even know how much they owe. The first step in any effective debt reduction program is to restrict your credit card use to emergencies only. The next step is to gather all your loan statements and credit card records and, starting with the debt carrying the highest interest rate, add up the outstanding balance on each account. Finding out how much you owe can serve as a real wake-up call to the need to stop running up bills. Then make a record of the interest rates you are paying on all your outstanding debt. This will help you with repayment priorities.

If you are a homeowner, a low-interest home equity loan is one of the cheapest ways to consolidate your debt and pay off high-interest credit card balances. Because the interest you pay on home equity loans, unlike credit card interest, is almost always tax-deductible, your cost of borrowing is lower. However, it is important to keep in mind that a home equity loan puts your home at risk should you default.

You also can lower your interest costs by transferring credit card balances to a lower-rate card. But before you go through the trouble of changing credit cards, check with your current card issuer to see if it is willing to lower your rate.

Don't fall into the trap of paying just the minimum due on your credit cards or it will take you forever to become debt-free. Be willing to bite the bullet and pay off as much as you can each month. If you have outstanding balances on a number of cards, your first priority should be to eliminate your most expensive debt. Pay as much as you can toward the debt with the highest interest rate. When that is paid off, move on to the next highest.

Withdrawing funds from low-interest savings accounts to pay off high-interest loans and credit cards almost always makes good financial sense, as long as you keep the equivalent of six months' worth of living expenses in a liquid account for emergencies. Remember, paying off a credit card carrying a 14 percent interest rate is equivalent to earning 14 percent on an investment—an attractive rate of return in today's economic environment. You also should make it a point to use any windfalls such as a bonus, tax refund or even the proceeds of a garage sale to pay down your debt.

Sometimes outstanding debt can become so overwhelming that instead of tackling it head-on, we try to avoid it&mash;a strategy that is sure to make matters worse. If you fall behind on payments and are having trouble coping with your growing debt, call your credit card companies and other lenders and try to work out an acceptable payment schedule. Avoid quick-fix "credit-repair" services—many are nothing more than costly scams.

After working hard to pay off your debt, the last thing you want to do is run up your balances again. It would be nice to think we could live without credit, but in this day and age, every now and then, you're going to need it. The key is to live within your budget and to use credit wisely. Shop around for a card with the lowest possible interest rate, and resolve never to charge more than you can pay off at the end of the month.

If your debt is too much to handle on your own, you may want to contact the Consumer Credit Counseling Service (CCCS), a nonprofit agency that helps consumers deal with credit problems. Some clients just need help curbing their spending and setting up and sticking to a budget. For others, the CCCS will negotiate with creditors—often getting concessions that clients may not be able to get on their own—and set up a repayment plan. To find the office closest to you, call 800-388-2227.

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