A second suggestion, Kathryn, is to automate your debt payments at a somewhat higher rate than you pay now. If you currently pay $50 a month toward a credit card balance, set up a monthly $60 payment via online banking and see how that works out.
Tina from Grosse Ile, Mich., asked: "WE NEED HELP WITH A BUDGET FORMAT TO FOLLOW"
McPherson answered: Tina, check out the personal finance calculators available at www.dinkytown.net. In particular, look for the home budget analyzer listed on the home page. It will help you figure out where you're money is going and identify possible areas for improvement.
Sarah from Dakota Dunes, S.C., asked: "Travis and I are a young couple. We just bought our first house with good rates and lots to choose from we got exactly what we wanted...maybe more than we bargained for. We are starting to feel the pinch of more bills...more expensive bills, and the need to buy things for the house. Where does it all go and how are we left with nothing in the end?!? On paper it works out...but in reality...it doesn't. Where did we go wrong? How can we get back on track?"
McPherson answered: Sarah, most first-time homebuyers, me included, underestimate the costs of home ownership. They focus more on their mortgage payment and compare that to what they're paying in rent. Even if you did factor in the costs of property taxes and homeowners' insurance, it's easy to overlook basic maintenance costs -- never mind upgrades and furnishings.
To get back on track, I would consider setting up a separate savings account to hold money for household needs such as repairs, maintenance, upgrades and maybe even a small household luxury or two. Use direct deposit or online banking to direct a certain amount of money each payday into that account.
While you build up the account balance, you may need to forgo new furniture and other nonessentials. Thirteen years after my home purchase, I'm still waiting for new bedroom furniture.
Just make sure you're covering the mortgage, insurance and taxes. You don't want to fall behind in those areas.
Nora from Ponca City, Okla., asked: "Why do banks have such low interest rates on savings accounts while credit cards are allowed to charge such high rates?"
McPherson answered: Nora, the short answer is banks are in business to make money. Much of their profit stems from the difference between the interest they must pay to depositors and what they collect from borrowers, including credit card holders.
It's to their benefit to pay as little as necessary to depositors and charge credit card holders the highest rates possible within the law's limits. For banks, credit cards are a high-risk, high-reward line of business. The risk of default by the borrower is quite high, but the tradeoff is the higher interest rates they can charge.
The best thing I can suggest is to play this game to your advantage by shopping around. Thanks to online banking, there's no reason for you to settle for a savings account paying you less than 1 percent. And if you have good credit, chances are you'll be able to find a credit card issuer willing to charge you a lower rate than you have now.