Six tips for cutting debt

Thirteen-point-eight trillion dollars is a mighty big sum. Yet, for years, we hardly noticed it. Now it's commanding our attention.

From 2000 to 2008, Americans doubled the amount of mortgage and consumer debt they held, until it came to $13.8 trillion, according to the U.S. Federal Reserve. You know the rest of the story: The financial world collapsed and frightened consumers got out their calculators to total up their tabs. From the $13.8 trillion peak, households have reduced that debt by half a trillion dollars and counting.

There's still a long way to go, economists believe, before Americans achieve healthy balance sheets.

Chris Hutson, a financial adviser with Edward Jones in Cape Girardeau, and Kenny Volkerding, a financial representative with Modern Woodmen Fraternal Financial in Cape Girardeau, say they meet plenty of clients in their 50s and up with credit card, car and home mortgage debt. According to Hutson, the number of clients with mortgage debt has especially increased in the past 10 years.

"I'm seeing more and more people retiring and still having a service debt on their mortgage. It seems scary to me to retire and still be paying that," says Hutson. "Our plan when we talk to people is to try to have that taken care of before they die." Volkerding agrees, adding that many clients worry about leaving a financial mess behind for their families to clean up.

Does a pile of bills stand between you and financial peace? Here are six ways to tackle your debt:

__1. Track what you spend__

Insignificant purchases can gobble big sums. Michael Collins, director of the Center for Financial Security at the University of Wisconsin, suggests keeping a list of everything you spend for at least a few weeks. By tracking every purchase, you discover what discretionary purchases can go, then devote that sum to debt reduction.

__2. Make a budget__

There are ways to budget and still say yes to some purchases, says Stuart Vyse, a psychology professor at Connecticut College in New London, Conn., and author of "Going Broke: Why Americans Can't Hold On to Their Money."

Vyse keeps two checking accounts. One is dedicated to necessary expenses, with a monthly automatic deposit to guarantee that money is there to pay the essentials. Michael McCall, a consumer psychology expert at Ithaca College, recommends that you also designate some cash for splurges. Paying for the fun stuff in cash is important, he says, since studies show that we're more reluctant to spend when we must fork over actual dollars.

__3. Set goals and work toward them__

Once you're on a budget, you can replace the pleasure of spending with the gratification of seeing debt disappear. You'll save more money in the long term by working down larger, higher-interest debts first.

"Pay a little extra if you can. You'll want to knock off the debt with the highest interest rate first," says Hutson. "Sometimes, just to be emotionally rewarded, you might get the smaller balance knocked out first just to know you have it paid off. It's a huge mental reward to get one debt off the books."

__4. Don't grow old with debt__

Older people who carry debt face a daunting challenge simply because they have less time to clear the slate before they retire.

"Your income is going to shrink [in retirement], and if you're still carrying credit card debt, then you could actually have negative cash flow each month," warns John Ulzheimer of SmartCredit.com.

Debt-burdened pre-retirees must cut spending to the bone, and some may extend their working years. Research ways to work down debt and learn how to allocate dollars between savings and debt reduction, says Barbara Whitehead, co-author of "For a New Thrift: Confronting the Debt Culture."

Hutson and Volkerding say a life insurance policy is one way to make sure any remaining debts are paid off without placing a burden on your family after your death.

"Upon death, the estate is then liable for (debt). It's not going to go away," says Hutson. "The estate's going to have to cover it somewhere, whether by selling the estate or liquidating assets." Earmark the funds specifically for your mortgage or any other debt, he advises. That way, when you die, the life insurance will cover any remaining debt.

__5. Become a reluctant spender__

Instant gratification is responsible for a lot of debt, Vyse says. Moreover, we're subject to constant temptations. "The world has changed dramatically," he says. "In the 1970s, when we went home at night we were out of the marketplace. Now you can go online or shop anytime."

Wait a day and it's likely you will have forgotten the item that would only add to your debt woes, Vyse says.

"Don't let it get out of hand. With credit card debt, a lot of times we relate that to younger individuals ... but it doesn't discriminate. It can get out of control for anybody at any age," says Hutson. "Just get it in check and stay within your means. Think twice before you buy something. Think, 'Do I really need it?' It doesn't matter if you're 20 or 60. Bad debt is bad debt."

__6. Keep your family clued in__

Whether you're dealing with bank accounts, stocks and bonds, or credit or mortgage debt, adult children need to be involved in finances during your end-of-life planning. They need to know where your money is, how you're going to use it, and whether you have enough to stay retired and live comfortably, says Volkerding.

"This is a thing that adults ages 65, 70, 75 have a hard time dealing with -- letting kids know where the money's at," says Volkerding. "Most (parents) want your advice, but they want you to listen to what they have to say and not tell them what to do ... The thing I tell people when they get into their senior years is to make sure if there is debt through credit cards or buying another car or purchasing a home -- make sure your kids are involved."