Step out of the credit card quicksand

Credit card debt is the opposite of investing. With investing, you earn a return on your money. With credit card debt, someone else is earning a return on your money, getting richer while you get poorer. You can get out from this quicksand, though. Millions have.

We offer detailed guidance on getting out of debt, keeping your credit record clean and choosing the best credit cards at www.fool.com/ccc. Here’s how to get started:

• Stop using your cards. Don’t add to your debt. Leave all your credit cards at home (perhaps keep one for emergencies only). Cut them up, if need be. Some clever folks make their cards hard to use by freezing them in glasses of water.

• Stop the flood of credit card offers. Opt out of all pre-approved credit card offers by calling 888-567-8688 or by visiting www.optoutprescreen.com.

• Always pay more than the minimum and, when possible, pay the maximum. Credit card companies require small minimum payments in order to extend your payments for as long as possible, boosting their profits.

• Don’t just throw yourself at a mountain of debt without preparation. Plan your attack. How many cards do you have? What interest rates do they charge? Which have the highest balances? It’s usually best to start by paying off the debts with the highest rates first.

• Reduce your interest rates. Many cards charge 25 percent or more, which is ridiculous. Negotiate with your credit card company for a significantly lower rate — it often works. Remind them if you’ve been a loyal, longtime customer. Say you’re prepared to take your business elsewhere. To find a low-interest card, click over to www.cardweb.com or www.bankrate.com.

• Consolidate your debts by combining them onto one or two of your lowest-rate cards, if possible. Your lender can help you transfer funds.

To join a community of people paying down their debts and supporting each other through the process, visit our Credit Cards and Consumer Debt discussion board via http://boards.fool.com.

Ask the Fool

Q: When I find a company with strong sales and earnings growth, what other factors should I examine before deciding whether to invest in it? — P.L., Fredericksburg, Va.

A: There are many considerations, chief among them being whether it has sustainable advantages over competitors.

On the balance sheet, if inventory levels or accounts receivable are growing faster than sales, that’s a bad sign. Another red flag would be if the company were taking on lots of debt. Two companies performing similarly on the income statement can look very different on the balance sheet.

Examine the statement of cash flows, to see how the firm’s cash is being generated. Look at how much investment is required to create earnings. Generally, you want to see most cash coming from ongoing operations — the stuff produced and sold — and not from the issuance of debt or stock, or the sale of property.

My smartest investment

In 1971, my folks gave us 10 shares of AT&T for an anniversary gift. Since the dividend amounts were so small, we decided not to reinvest them but to use them for dessert treats. We’ve hung on to our shares and, after splits, we now have 84 shares. Over 28 years, we’ve enjoyed many hot fudge sundaes. Should we have reinvested those dividends, though? — Sybil Joffe, Knoxville, Tenn.

The Fool Responds: Each share of AT&T today pays $1.35 in dividends, so you’re receiving $113.40 annually now. Generally, it’s smart to reinvest dividends over time, letting them buy more shares that will kick out dividends of their own to reinvest. In AT&T’s case, you would have received not only dividends but also lots of spin-offs of Baby Bells and more.