Get out of debt on $26,000 a year [chapter1]

Attacking those old debts

Hunihan has a tight budget but could start knocking out those lingering bills:

First, she could find a way to bring in extra income and put every penny of it toward old debts. Perhaps she could get an extra shift at the hair salon or a part-time retail job.

Next, she should pay off the smallest debt first. Though a $79 gym bill may not seem like much, erasing it from her "to pay" list would feel like a great accomplishment. She could then move on to the next bill, and the next, until they're gone. Her old credit card bills have balances of less than $600 each and interest rates of more than 25%, so there's no advantage to paying one over the other.

Hunihan also needs to check her credit report to make sure there are no old bills she's overlooking. She can get a free credit report once a year from AnnualCreditReport.com, a service provided by the three major credit bureaus.

Understanding how she dug the hole

Hunihan no longer has any credit cards -- the lenders canceled them due to nonpayment -- but her debts remain.

To avoid falling back into dangerous spending patterns, Hunihan needs to understand the roots of her habits.

"My first memory of my mother and money is seeing my father yell at my mother because she was always spending money," Hunihan says.

Her dad was a strict budgeter who used a green pad and pen to keep track of every dime, but Hunihan took after her mom, whom she calls a shopaholic.

Hunihan began her relationship with credit cards as a freshman in college when she was greeted by a long table filled with banking representatives. In minutes, she walked away with five credit cards and thousands of dollars of available credit.

Within two or three months, Hunihan had maxed out her plastic. She didn't bother -- nor could she afford -- to pay the balances, and she wasn't worried about it. Back then, she didn't understand why it was important to make timely payments.

"I don't think it was until about five years ago that I understood I had to pay even the rent on time, that people couldn't just wait for their money," Hunihan says. "I have to pay things on time to look in the mirror and respect myself or have other people respect me."

from MSN Money