Get out of debt on $26,000 a year [chapter2]

Staying current

Hunihan's former spending habits have damaged her credit history, but she can repair it in several ways:

Pay her current bills on time.

Knock out a large loan, such as the one for a new car she took out in 2007. Her poor credit netted her a 36-month loan that requires weekly payments. The $10,000 loan will cost her an additional $4,000 in interest by the time she's through, but successfully paying it off will indicate to future lenders that she's a better credit risk now.

Get a secured credit card. Hunihan could open a secured card with a small amount, say $200. The lender would give her a credit card with a matching $200 limit. The lender would have Hunihan's bank deposit for collateral, and, as long as she made timely payments, Hunihan could prove she's become more responsible.

Set up a regular repayment schedule with the bank where the checks were overdrawn. The account is closed, but sending money consistently will exhibit her financial discipline.

Avoiding future disasters

Hunihan shouldn't devote all her earnings to paying current bills and ridding herself of her debts, though. She still needs to prepare for surprises.

She should set aside a small amount each week -- even $10 a month -- to a savings account she can access in emergencies.

And Hunihan should get health insurance. She's living without it because her employer doesn't provide it. But the risk is too large. If she developed an unexpected illness or had an accident, her financial plan would be ruined, and she'd be buried under medical bills.

Hunihan should check whether she's eligible for any discounted health policies through alumni or industry groups, such as the National Cosmetology Association, which offers discounted insurance policies to its members. Or, if she looks for part-time work to bring in extra cash, she could seek an employer that offers insurance to part-timers. These are hard to find, but some larger chain companies do offer health benefits.

She should also check Families USA's state-by-state guide to see whether she qualifies for any state health insurance programs.

Having the right attitude

Despite all her troubles, Hunihan has the right attitude. She considers herself lucky. She says she easily could have been one of those people with $23,000 in credit card debt rather than the total debt of $3,000 she has.

She also has a goal that motivates her to stick to frugality: She wants a zero balance and a shot at someday opening her own hair salon or doing hair and makeup for videos or film.

"I don't usually fail," she says. "I'm trying to fight for the good and make my dreams come true, and thereafter I hope to do good for other people. You'll see me someday, I promise."