You Asked, We Answered: Paying Off a Mountain of Bills, Budgeting Wisely and More

You submitted your questions about budgeting and financial planning to ABCNEWS.com personal finance columnist David McPherson.

McPherson is founder and principal of Four Ponds Financial Planning (www.fourpondsfinancial.com) in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News. Stacy from Kansas City, Mo., asked: "How do I budget on how to pay off credit cards. One card at a time? Help me from borrowing from my bank to pay off credit."

McPherson answered: Stacy, I would start by making sure you're current on all your credit card payments. Managing multiple credit cards with different payment dates can be quite tricky. Make sure you're making all your required payments on time. Otherwise, you'll get hit with severe penalties and possibly higher interest rates.

Second, take out the latest statement from each card on which you're carrying a balance and check the interest rate each one is charging. You want to focus on paying down the cards in reverse order of the interest rates. Pay down the one with the highest rate first, and then move on to the one with the next highest rate, and so on until you reach the lowest-rate card.

Say you have an extra $500 in a given month. Better to pay down the card with the 19-percent rate than the one charging 15 percent.

I also would suggest trying to automate your payments as much as possible with online banking. Schedule a payment to take place on pay day to ensure you're making progress. Even if it's just $10 a week, it's better to move forward with small steps than to constantly take big steps backward.

If you own a home, it may be worth considering a home equity loan as a means of consolidating your debt at a lower rate. But be careful. Don't just use it as a means to borrow more. Also, in the current environment, home equity loans are harder to obtain than they were a year ago.

Kathryn from Virginville, Pa., asked: "I'm a single mom making @ $57,000/yr. I make good money now but over the years without any child support I've gotten into credit card debt. Now I'm struggling to make ends meet and dig myself out of debt. On top of the already bad economy and rising costs of everything, my house needs major repairs. Is there a way to take my good salary and get myself out of debt without filing bankruptcy?"

McPherson answered: Kathryn, the best way to dig out of debt is one shovelful at a time. It may seem daunting, but if you make just a little bit of progress, it will make you feel better about the situation and motivate you to do more.

One suggestion for you and others struggling financially is to scrutinize any recurring monthly bills you pay either by credit card or by automatic debit from your checking account. Bills for cell phones, cable television, Internet service and newspaper subscriptions have a way of living on beyond their necessary lives.

Revisit every monthly cost and decide whether you really need that service or product. Companies want you to set up these recurring payments because they know inertia takes over and you're likely to continue the payment well beyond your need for their product or service.

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