Get out of debt now - tips and tools

Morningstar's Investing Tip for the Month

Before people can invest for retirement, college, or other purposes, they have to have money left over after paying their bills. People have plenty of excuses for running short each month, but there's no good reason, if they have the desire to save.

Sue Stevens, CFP, CFA, CPA/PFS, and Morningstar's director of financial planning, urges people to follow these five steps to reduce their debt:

1. Know what you owe. This boils down to keeping a record of every penny you spend. You'll be surprised how those occasional coffees, little treats, packs of gum, for example, add up to real money. You can't save it if you don't know you're spending it.
2. Set up your budget and pay down your debt. A budget on a spreadsheet allows you to think through your expenditures and find places to cut back. And if you do nothing else, pay off your credit cards. Their high interest rates practically guarantee a lifetime of debt.
3. Lower your borrowing costs. As you're working to free yourself of debt, take advantage of low-interest offers.
4. Set up an emergency fund. Unexpected expenses, like car repairs, or income reduction, like a layoff, can plunge you right back into debt. So set up an emergency fund, funnel money into it, and keep it out of sight in a money market fund.
5. Live within your means. Gratifying every whim is a sure prescription for trouble. Know your limits and live within them. You'll not only be richer, you'll be happier, too.
   

Want specific cost-cutting ideas? Go to the Investing for Beginners guide (pdf). There you'll find Sue's 101 Ways to Cut Expenses.

Morningstar.com is great tool for new and veteran investors. It's chock full of unbiased analyst reports, tools for evaluating your portfolio, and lessons on how to invest. The best part is that it's free to all valid library cardholders! Begin now or learn more.