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Make over your credit
The Chatzky Program, Step 6: There are only two ways to wipe out huge liabilities fast.
May 17, 2005: 4:39 PM EDT
By Jean Chatzky, MONEY Magazine. Additional Reporting by Carolyn Bigda.
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NEW YORK (MONEY Magazine) - All their friends seem to be snapping up big homes fearing that interest rates could spike higher, but New Jersey natives Laura Bonanni and her husband Al Castorino are doing just the opposite.

They're trading down.

In midsummer, the thirty-something parents of one-year-old Anthony took a look at their finances and decided it was time to cash out and use that money to eliminate their consumer debt.

So they put the two-bedroom Hoboken apartment they bought 18 months ago for $400,000 on the market for $550,000. They found a four-bedroom house in Matawan for $420,000.

Their plan is to take $10,000 of their gain and pay off their credit cards.

"We racked up some debt furnishing the apartment, and it makes me uncomfortable," says Bonanni. "I always used to pay my bills in full."

Another $20,000 will go to their car loan. They'll use the remainder to trim the mortgage on the new home. "I don't want to be working this much when I'm 40," says Bonanni, a hair stylist who often pulls 12-hour days. "If we can pay off this house quickly, I won't have to."

There are only two ways to dramatically reduce debt right away: spend less (a lot less) or earn more. That can mean sacrifices -- moving to Matawan will triple the couple's commute -- but that pales beside the prospect of paying hundreds, or even thousands, of dollars in interest and being in hock to MasterCard forever.

Spend less

To make a serious dent in your debt, you need to look at the big-ticket items.

Housing: You can move to a smaller house or a cheaper locale. Or you can rent.

According to, over the past three years, rents have fallen by about 10 percent, while average mortgage payments have gone up by 20 percent.

You will have to pay moving costs, but you should quickly make it up with savings on repairs, on maintenance and -- since renter's coverage is much cheaper than homeowner's -- on insurance.

Transportation: How many cars are in your garage? If the answer is more than one, consider paring down. You'll save on car payments, gasoline, insurance, parking and servicing.

Child care/education: By moving closer to her parents, Bonanni was able to replace her full-time nanny with half-day child care. Her mom was happy to babysit the rest of the time. Savings: $500 a month.

If you're footing the bill for private school, look into public school. Or apply for financial aid.

Earn more

If spending less can't do it all, bring in more money.

Sell assets: When companies are looking to reduce debt, they sell divisions, product lines, inventory and so on.

Before you part with your jewelry or your time-share, however, find out what your assets are worth. Take valuable items to a certified appraiser who is not in the business of selling things like yours.

For household items, you can check eBay. If you act as your own seller, insist on cash, a cashier's check, a money order or an electronic transfer through PayPal or a similar service. If a buyer wants time to get a cashier's check, ask for a deposit in cash.

Moonlight: More than 7 million Americans already have second jobs, according to the Bureau of Labor Statistics.

Nearly three out of every 10 people who hold more than one job say they do so to meet household expenses or pay off debt.

If you want to follow suit, clear it with your boss. You don't want to upset your main source of income and health insurance.

Editor-at-large Jean Chatzky appears regularly on NBC's Today. Contact her by e-mail at  Top of page