Big Steps to Paying Down Your Debt

Consumer-spending strength has a plastic backbone.

Through the month of July, consumers were saddled with a record $1.72 trillion in debt, an increase of $500 billion in five years, according the most recent data available from the Federal Reserve. As of 2002, the average American family had close to $7,000 in credit card debt -- that's excluding health-care costs, car loans and mortgage payments.

Along with record debt levels have come record numbers of bankruptcy filings -- with 1.5 million cases filed in the last 12 months and 400,000 cases in the second quarter alone, according to information from the Administrative Office of the U.S. Courts.

The economy is teetering between double dip and slow growth, and neither benefits the serial debtors among us. If it worsens, unemployment will rise -- meaning it gets harder to service that debt. If it brightens, interest rates will rise -- meaning it gets harder to service that debt.

Now is the time to get your house in order. Here are the 5 1/2 steps you must take.

1. Read the Signs

Just because you have a Fair Isaac credit rating above 700 and get bombarded with 0% annual percentage rate card offers doesn't mean you're immune from debt problems.

There are the basic signs that you're in trouble: carrying a balance on more than three credit cards -- yes, the Home Depot card counts; making only the minimum monthly payments; and using cash advances to pay bills. But most experts say people don't reach that point until they're hit by an unexpected crisis.