I tend to spend money, where she would rather do without to save money. Have you ever bought something, thrown a party, or taken a vacation with a justification of we deserve it? There is nothing wrong with rewarding yourself or loved ones by splurging on material items or going on a nice vacation, but it should not take precedence over being fiscally responsible.

It is acceptable to reward ourselves once we reach certain financial goals set from a previous year or once we meet an investment goal.

Paying Down Debt – I had always made paying my debt my first priority. If I had any money left over I would “invest” what little money we had in the stock market until we needed the money to pay down our debt again.

The problem with keeping your debt paid down without changing your spending habits is that it creates a vicious cycle of reckless spending.If you are like me, you will find very little if any additional money to invest.

While reading Robert Kiyosaki’s book Rich Dad Poor Dad, he discusses paying yourself first. It took me a while before I realized how to pay myself first. Paying off debt remains a very high priority, but I do not pull money from my investments to pay my bad debt. Just as a reminder, bad debt is debt that we pay ourselves and good debt is debt that someone else pays, simply the debt of an asset.

Stop adding to your debt- It sounds simple but most people overlook this critical step to paying off debt. Accumulating more debt while trying to get out of it defeats the whole purpose, always spend wisely. Make a list of all your bills and create a daily budget so that you know how much to spend.

Identify High-Cost Debt

Yes, some debts are more expensive than others. Unless you’re getting payday loans (which you shouldn’t be), the worst offenders are probably your credit cards. Here’s how to deal with them.

• Don’t use them. Don’t cut them up, but put them in a drawer and only access them in an emergency.
• Identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one’s paid off, work on the card with the next highest rate.
• Don’t close existing cards or open any new ones. It won’t help your credit rating.
• Pay on time, absolutely every time. One late payment these days can lower your FICO score.
• Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club you’ve never used? Look for line items you don’t need.
• Call your credit card companies and ask them nicely if they would lower your interest rates. It does work sometimes!

Lower interest rate on credit cards – Call up all your credit card companies and politely ask the representative if he or she can lower your interest rate. More than half of the time this works according to a study. Do not close credit cards after you have paid them off because this will lower your credit score.

1. Budget it out

Unless you write a budget, you’ll just keep overspending and not having money left over to pay off debt. Starting with your income, start writing at least a basic budget that will let you see and control where your money is going. Creating a budget is an essential step in paying off debt, and once you get one, you should create a debt payment plan with some of these other tips.

2. Pay your debts with savings

Many people would think that this is crazy, but because of how compound interest works, it’s a pretty smart idea. Savings rates these days are so low that your debt will compound more interest than your savings. This means that if you keep putting money into your savings account and leave money on a credit card, you’re going to be wasting a whole lot of money.

Since you can’t ever match your savings rate and your debts’ interest rates, you should use your savings to pay off your debt. It’s a smart idea to keep a bit of money in the bank for an emergency. You don’t want to have to charge emergencies to a credit card, so it’s a good idea to have a small emergency fund.

Beyond a small emergency fund, you should really take all your money from savings and put it to your debt. This will help you pay off your debt more quickly than just about anything else if you have a hefty amount in savings.

3. Boost your income

One of the simplest ways to pay off your debt is to boost your income. You can do this by working more hours, taking a second part-time job, or renegotiating your salary. You can also do it by cutting back on your spending. Going out less often and shopping less will help you put more money toward your debt. Also, check for other ways to bring in money, including income support and tax credits.

4. Overpay your debts

Because of how compound interest works, paying more than you owe on your debts each month is one of the most effective ways to pay down debt. Since you’re paying off the principle sooner, you’ll pay less interest over time and you’ll pay off your debt sooner. Any time you can, you should overpay on your debt payments, even if it’s by just a few pounds a month.

5. Use a home equity loan

A home equity loan is basically increasing your mortgage. If you have equity built up in your home, you can use this type of loan to pay off your higher interest debt. You can’t use this option unless you actually have equity built up in your home, though.

If you do have some equity in your home, this can be a really effective way to reduce the number of debts you have. You won’t, of course, actually be reducing your debt as much as you’ll be reducing the amount you pay as a mortgage has a lower interest rate than most other debts.

All loans carry certain risks, but a home equity loan may carry even more risks. With this type of loan, you could lose your home if you defaulted on payments, just like you would if you couldn’t pay your mortgage.

6. Make a debt snowball

One of the best ways to pay off debt is to make a debt snowball. Basically, you’ll focus on one of your debts at a time. This can help you pay off debt more quickly and save on interest payments.

Pick one debt to pay off first, either your smallest debt or the one with the highest interest rate. Pay the minimums on all of your debts but that one, and dump all the extra money you can get into the first debt. When that one is done, you’ll take the extra money and the minimum payment from the first debt, adding it to the payments for the second debt. With every debt that you pay off, you’ll have more money to put toward your other debts.

Using debt reduction programs on your computer can help you see just how this snowball process will work for you.

7. Speak with your creditors

You may be surprised at how much you can achieve by talking to your creditors. For the most part, these companies would rather get your full payments than take you to court or watch your file for bankruptcy. As soon as you have a problem paying off your debts, you should call your creditors.

Different creditors will offer different options to help you out. Some will lower your monthly payment. It will take longer to pay off your debt this way, but the payments will be more manageable. You’ll end up paying more in interest, but you’ll have an easier time working your payments into your budget.

You may also be able to lower the interest rate on your loans, which will reduce both your monthly payment and the total that you’ll pay over time. This is probably better for you, since you won’t end up paying as much money over time.

If you have documentation that you can’t pay your debts, your debtors may freeze your interest for a bit. They can knock down your monthly payments a bit and let you pay just on principle for a while.

8. Use a low rate credit card

Instead of consolidating your debt through a debt management company can be a good option, but transferring credit card debt can help, too. You can basically get one credit card with a low interest rate, and then transfer balances from your higher interest cards onto it. You’ll probably find several different offers for balance transfer systems that will give you a low interest rate for a while.

Find the card with the lowest interest rate for the longest period of time. When you transfer your balances, pay the new card off as quickly as possible. Also, don’t use your old cards or use the new card for any random charges. If you’ll have trouble staying out of more credit card debt, you should close up the old accounts and cut up the old cards.

Before you start doing this, you should read about the good and bad points of credit card consolidation.

9. Talk to a debt management company

If you really feel like you’re drowning in debt, one possible solution is to talk with a debt management company (DMC). This should be one of your last resorts, though.

Basically, a DMC will give you a debt consolidation loan, which is one big loan that pays off all your other loans. Instead of paying several payments for different debts, you’ll make one payment to the DMC each month. Usually your payment will be lower, and you might get a better interest rate than you would with some credit cards.

10. Go bankrupt

This is your absolute last option, and you shouldn’t turn to it unless you have no other way to pay off your debt. When you file for bankruptcy, the courts will claim your assets – which might include your car and home – to pay off your debts. This can be a little scary, and you should seriously weigh up your options before you step in this direction.

So where can you find additional money to apply to your credit card debts each month? Here are various ideas:

Tax refund: Do you typically get a large tax refund each year? If you do, then you can apply part or all of the refund to your debts. In addition, you should adjust your withholding so that less taxes are withheld from each check; you’ll get a smaller income tax refund, but you’ll have more money to apply towards your debt payments each month. The last thing you want to do is give Uncle Sam an interest free loan when you have high interest credit cards!

Savings: Nobody wants to cash out their savings account to pay off credit card debt, but when you have credit cards that are costing you 18% or more in interest each month and your savings are only earning 4% (or less), it just gets sense to use some of your savings to get rid of that nasty credit card debt.

Bonuses, raises and overtime: Anytime you get a raise, bonus or earn overtime, you should use at least a portion of that money to pay towards your debt. Since this is “extra” money that you didn’t have before, you shouldn’t miss the money that you put towards your debt.

Part time or temporary work: If you’re really in a debt bind, consider getting a part time, seasonal or part-time job. It doesn’t have to be forever, just long enough to pay off or at least make a dent in your debt.

Sell things: Another option is to sell things to raise money. Have a yard sale or sell items no longer used on eBay. Sell books that you no longer read on Amazon or Half.com. You’ll be surprised at how much some items will sell for on an online auction!

Borrow from family and friends: Everyone hates to ask family and friends for money, but if you’re in over your head and you have family members in a position to help, this is an option you shouldn’t ignore. If it helps, you can draw up a written agreement so that each party knows what to expect, and there’s no chance for disagreements or hard feelings down the road.

Borrow against your home equity: This is not an option to take lightly. Yes, you can reduce the interest you are paying on your debts significantly by taking out a home equity loan, but remember that your home is at risk if you are unable to make the payments for any reason. Choose this option only if you are 110% sure that you can continue to make your payments, even in the event of a job loss or other emergency.

Reduce spending: Although named last, this is probably the first strategy you should take to find extra money to pay off debts. You should review your spending to see if there are any areas that you can cut back on to generate additional cash to be used towards your debt. Some typical areas that can be cut back on, at least temporarily, to help pay off debt include food (both groceries and eating out), amusement (gym memberships, magazine subscriptions, cable, internet, trips to the book store) and personal care (haircuts, clothing, housekeeping, etc.).

These are just a few suggestions on how you can find money to help pay down your debts quicker. There are hundreds of other ways you can find money to use towards your debt if you are motivated to search for them.

The company itself offers free consultations to individuals who are interested in their services. However, the program is not for everyone since it is an education program as well as a debt relief service. Some individuals that will benefit the most from such a program include people who owe more than ten thousand dollars in debt. If you choose to sign up with the company, you will not have to enroll all of your credit cards in the program. You have the choice of which credit cards will and will not be included in your program. Debt that works within the program can include credit cards, especially major credit cards, unsecured personal loans and other lines of credit cards. Secured debt is not covered in the Federal Debt Relief System program. Medical bills, child support, business debt, utilities and student loans are also not always covered in the program. Accounts will be closed during and after the program takes place so that individuals cannot get in any more debt while they are going through the educational process. The program works well with thousands of creditors across the country.

If you have debt that is in collection, but you have not made any payments on these collection debts, you can include that debt in your Federal Debt Relief System program. If you have made a payment toward that collection based debt, the Federal Debt Relief System cannot help you with that debt because your payment signifies your belief in the validity of the debt that you are being charged. The program will not work for debt that is already in consolidation. The processes that are accomplished by the Federal Debt Relief System can be performed by individuals, but only if they are lawyers.

For tax consequences, it is important for individuals to get the proper information about how the program will affect them from a tax standpoint from tax professionals. This is because the program does not give out this type of financial advice and sticks to the areas of education that they are best suited for. Legally, it is not possible for the company to guarantee their work. No lawyer can guarantee their work one hundred percent because the legal system is not always clearly able to be forecasted. However, it is important to note that the program has a one hundred percent success rate to date and the program continues to be improved upon regularly. The program’s associates are working on a continuous basis to ensure that their consumers are happy and the debt is taken care of in a legal and educational manner.

1) Accept the fact you are in debt and forgive yourself. If you are in denial, you are more likely to repeat the pattern.

2) Reduce monthly expenditures. For example, once the price of gas increased, our monthly gas costs went from roughly $200 to approximately $450- 500.00. In an effort to reduce our gas costs, I stopped taking miniature trips every day. Also, my wife would drive my car on the weekends because it costs less in gas.

3) If you’re a person that makes several trips to the grocery store during the month, reduce the number of trips to once a month except for fresh vegetables. This will reduce the number of times you have to put gas in the car. Today, it costs more just to leave the house to get groceries as well as going to work.

4) With the increasing utility bill, begin making repairs to your home now such as getting a programmable thermostat and set it to a certain temperature so that it will automatically come on.

5) As an option, temporarily get a second job for supplemental income. If married, this should be the person that has the ability to generate the most income. I do not recommend any Multi-level Marketing opportunities.

6) For a single person in debt – if you are off on weekends, temporarily get a weekend job and put those funds towards the bills along with your regular income.

7) If you have a cell phone and a regular phone that both have long distance, re-evaluate having both phones. It can get expensive to have both with long distance. Maybe you can remove the regular phone and just use your cell phone if most people call you on that number.

If you are a stay at home mom, in my opinion the kids should not be going to daycare. This is an unnecessary expense.

9) Be sensible about your expenditures when it comes to your children. For example, a six month old baby does not need name brand clothing. They need to be clothed. Suggest getting into ‘mommy group’ where you and your friends can swap clothing based on gender and age. I have a couple of moms that I swap clothes with and this saves all of us from having to shop at the store.

10) Grooming expenses for adults: do you really need to get your nails done every week? Could you put that money towards a bill? If you are getting your hair done whether it is a weave, perm, braids or tinting every week – do you need to go to a high end salon or could you go Great Clips for the same thing? I am not saying do not pamper yourself; however, as times get tougher what is the necessity?

11) Maintaining your vehicle is a necessity, but going to a car wash every week is not. You can wash your car at home. Re-evaluate how you are spending your money.

12) If you are a person that likes to go out to eat, reduce the amount of times per month you go out to eat. Begin cooking at home since you are buying groceries for the month.

13) Entertainment – whether it is going to the movies, bars or happy hour – these expenses add up. For example going to a matinee is $7.50 a person (for the two of us is $15.00 before we even get food, which would cost us another $15.00) do you really need to see the movie now or could you wait three months and see it on DVD. Netflix is an option.

14) Add up how much you spend at a vending machine per week when you are at work if you work outside the home. Consider taking snacks from home.

15) Health insurance – if you had a job and are using COBRA for health insurance until you have secured another job, seek an alternative health insurance to the COBRA payments. I remember when I first stopped working at the law firm, we utilized COBRA for almost eighteen months and the price increased two times. Prior to the second increase, I located a shared insurance plan and saved us lots of money.

** There has to be some structure during these difficult economical times. However, these times do not have to be so hard that you cannot enjoy life.

Debt consolidation services are companies who specialize in helping you free yourself from the burden of debt. If you have debt that seems to pile up more and more each month, bills for which you can’t even afford the minimum payments, and the trend has been continuing for a long time with no end in sight, then a debt consolidation service may be just what you need to help you out of the tangle of debt you’re in.

How Can Debt Consolidation Services Help?

Did you know that your creditors are the ones who absorb most of the costs when you consolidate your debt? To those you owe, it is a better financial decision for them to accept partial payment from you than none at all if you file for bankruptcy or simply never pay. A debt consolidation services company representative will stand up for you and negotiate with those you owe and decrease your overall debt as well as get rid of interest payments and taxes.

What Do the Creditors Gain From Debt Consolidation Services?

The reason why your debt is so high is not necessarily because you spent too much money. Your debt may be due in large part to the high interest rates and fees that accrued as the months passed without payment. Creditors usually recoup at least the original expenses – that is, the amount the bill was originally before it was doubled and tripled or even quadrupled by over limit and late payment fees and interest charges.

Additionally, creditors can write off all the money they lose in interest and fee payments on their taxes so as long as they still get the original amount that you owe them, they have nothing to lose.

What Do You Get From Debt Consolidation Services?

You get to combine all your bills into one bill payment every month. You get one payment that is considerably lower than all your other bills were before. Your phone will stop ringing off the hook with creditors calling you and asking for money. Your stress will dramatically decrease knowing that you have taken the steps to get yourself out of the downward spiral of debt.

All of this starts when you employ a specialist in debt consolidation services.

In that moment, Shivers, then 34, made her decision. She found a credit counselor, cut up all but one of the credit cards and got on a payment plan. Three and a half years later, she paid off the last of the bills.

It’s hard to escape the news that Americans are drowning in personal debt, but you hear less about the many people who, like Inga Shivers, have been able to dig out of debt.

Getting sucked in

The personal-debt problem gets so much attention that it’s surprising to learn that many credit card holders — 40 percent, according to the Federal Reserve — pay their balances in full each month. High-income families typically carry a bigger monthly balance, but they can (and do) regularly pay off a bigger share of their debt, says Christian Weller, senior economist with the Center for American Progress.

People with little income are more likely to be sucked into the vortex of credit card debt, hidden fees and escalating interest rates. That’s because homeowners can transfer credit card debt to lower-rate mortgage lines of credit (rarely a good idea, by the way), but those without a home have to turn to high-interest payday lenders when credit card companies cut them off.

Former debtors have successfully used a wide range of systems, books or programs. For Sarah Maffei, the radical approach was the ticket. She amassed $30,000 in debt, about half of it in student loans, by the time she was 28. Her debt began as soon as she got her first credit cards, at age 18. When she graduated from college, “I must have had about 16 credit cards,” she says, including six major cards and a fistful from department and specialty stores.

Joining the workforce as a benefits professional in San Francisco forced a reckoning: “When you are in college, you keep thinking that you are going to graduate, get this great job, make all this money and you’ll pay it all off.” Instead, she owed $1,000 more than she would earn in a whole year. She was miserable: “You’d pay $30 and $16 of it went to interest. … Every payday, my whole paycheck was gone.”

Saving up for a movie

Maffei heard about Joanne Nagel, a consultant whose system requires an all-cash existence. It was a harsh system — exactly what Maffei wanted. She abstained from credit cards, even from ATMs. She learned to keep records, budget each week in advance, pay herself in cash and suck it up if she ran out of money midway through.

Her budget was Spartan: $39 for groceries, $5 for dry cleaning, $20 for lunches out, $5 for cat food, $5 for gas and $10 for clothing. Recreational shopping was just a memory. Entertainment was “staying home, renting movies, having friends over or going to friends’ houses.” Her recreation budget: “Four one-dollar bills. If want to go to the movies, I have to save up for two weeks. And if I want popcorn, I have to save up more.”

She gravitated toward friends she had formerly disdained as “cheap.” It became kind of fun. For a Christmas party, she splurged two weeks of her clothing allowance on a discount-store dress.

After two and a half years, the whole debt was paid. Today, she still lives almost entirely on cash, planning every category each week on a spreadsheet. Faced with big purchases, she compares the cost with her budget for that category, asking herself, “that’s a week’s worth, or two weeks’ worth — is it worth it?”

She’s a single parent now. While that’s tough, she says, “it’s great to look back and say, ‘Oh, my God, if I could live on that, I can definitely do this.’ … I never thought I could pay off one (bill), let alone all of them.”

Pick your program

Few statistics exist to tell how many debt survivors have paid down big balances and changed their habits, let alone how they did it. There are only reports describing the nation’s mounting load of personal debt. The average card holder had $4,800 in credit card debt in 2007, according to the Census Bureau, a number that’s expected to reach $5,500 in 2008.

A report from the Center for American Progress says:

• The number of American families carrying card balances is growing.

• Credit card debt is growing fastest among middle- and low-income families.

• Low-income families have the greatest debts, proportionate to their incomes.

• Families with higher credit card debt — not overall debt — are more likely to become delinquent on card bills.

Howell Edwards of the nonprofit InCharge Debt Solutions (formerly Profina Debt Solutions) says that about 40% of the roughly 30,000 people who enroll in the company’s debt management program annually complete the program. Of the rest, some file for bankruptcy, others use home equity to shift their debt and a substantial number feel they are able to manage their debt on their own, says Edwards.

5 traits of the debt-free

It is credit cards, with their easily triggered fees, escalating interest rates and hidden costs, that seem to push debt out of control.

Despite the odds, committed debtors manage to cut up cards, pay down balances and foreswear old habits. The system they use, whether a credit counselor or the 12-step self-help group Debtors Anonymous, appears to matter less than their determination to claw their way out. Some ex-debtors say they can’t touch another credit card as long as they live. Others do just fine with credit. Regardless, they all:

• Decide to leave their dream world, add up the damage and assign a cold, hard number to their total debt.

• Stop using unsecured debt — at least until they’ve reached a zero balance, and maybe forever.

• Focus intently — and stay focused — on their system, whatever it is.

• Plan and track where every dime of their money goes.

• Don’t quit until they’re done.

Motivation: Fear

Shivers has advice for people in debt trouble: Get educated. Her trouble began when she left her $89,000-a-year pharmacist career to start a home-based business. Her passion was marketing, so she pulled $30,000 out of her $65,000 savings and launched a direct-mail business.

Although she poured herself into the company, she had no business background, no marketing experience and no education in managing money. Her knowledge was from popular culture. “You read about all these people who started businesses with their credit cards,” she says. After burning through her starting capital, she ran up nine credit cards. “It would be, like, a $5,000 chunk here for a new computer system, $2,000 there for a new printer,” she says. She was shocked to find that she needed $2,000 worth of paper.

She returned to pharmacy work part-time, taking every available shift to support her business. She felt sick with fear over her inability to manage. “I didn’t have a social life at this point. Everybody at my job knew that I was paying off a big debt.” That’s when her colleague stepped in, pointing her to a local affiliate of the National Foundation for Credit Counseling, a national network of nonprofit agencies.

For a $10 monthly fee, the counselor took over, negotiating lower interest rates with most of the card companies. They lowered the 25% interest rate to 15% on her card with a $30,000 balance. They collected $879 a month from her and paid off her bills. She relinquished all the cards but one and took classes on money management and business. She never considered bankruptcy, she says, because, with her lucrative profession, she could pay the debt fairly quickly and maintain her credit rating.

How to spot trouble

Jerrold Mundis, author of “How to Get Out of Debt, Stay Out of Debt, and Live Prosperously,” says it’s easy to know if you’re in trouble: “Ask yourself, are you debts causing you any level of discomfort at all? If they are, it is almost certain that you are having a problem with debt.”

Here are the three suggestions from Mundis, a self-confessed ex-debtor, and others who have successfully paid off catastrophic balances:

• Avoid telemarketing “debt counselors” and for-profit organizations. Find a counselor certified by the National Foundation for Credit Counseling. (Recently the Internal Revenue Service found that 41 of 63 credit-counseling companies it examined were preying on debtors.) Read “The consumer’s guide to credit counseling” to learn more.

• Debt collectors buy uncollected debt from creditors for literally pennies on the dollar. This means there’s room to negotiate with creditors. Watch out: If you get a really big reduction, you may need to file an IRS form 1099 and adjust your taxes. (Read “Make a deal with debt collectors.”)

• Target bills and zap them one by one (while staying current on the others). Choose the smallest bill, post it on the refrigerator and mark the reduced balance with each payment. Celebrate each time you knock off a bill.

Once you get free, debt veterans say, the temptation to slide back into debt can be huge. It was a way of life, after all. As one former debtor says, “Be prepared for emotional ups and downs tied up in money. There is an enormous emotional content to money stuff for a great many people.”

Increasingly, they fall behind on their loans or default. The U.S. Department of Education recently reported that the national default rate on federal student loans rose slightly, to 5.1 percent, in 2004, the latest statistics available, from the previous year’s record low of 4.5 percent. The default rate represents the percentage of borrowers who began repaying their loans between Oct. 1, 2003, and Sept. 30, 2004, and who defaulted before Sept. 30, 2005.

Although the default rate is low compared with the all-time high of 22.4 percent set 14 years ago, the latest increase is still a signal that shouldn’t be ignored. Since the 1990s, the number of students who graduate with more than $25,000 in loan debt has tripled, according to the student Public Interest Research Groups, which along with several state student associations last year launched the Student Debt Alert project.

The rising student loan levels are so troubling, it’s time we stop saying this is good debt.

“Having over $100,000 in student loan debt is not fun,” wrote one reader, a new lawyer who joined me during a recent online discussion. “Do I regret going? No, but it certainly didn’t pan out the way I thought it would. I am working like a fiend, not getting paid what most people think lawyers make, and struggling daily with money and budgeting. There are hundreds, from my class alone, who are in the same boat.”

Sinking in debt, borrowers want to know their options. They look deflated when I tell them: Pay it as originally agreed over 10 years and live below your means, or stretch the payments over as long as 30 years.

And no, bankruptcy is not an option. If you have a federal student loan, it can’t be discharged in bankruptcy. If you have a private student loan, it’s still not a viable option unless you can prove that paying it would result in “undue hardship,” a test that is nearly impossible to meet.

There is some relief, even if temporary. Depending on the loan, there are several options, such as a graduated repayment plan, whereby loan payments start out low and then increase, typically at two-year intervals.

Some loans have an income-contingent option. That gives you the flexibility to pay off the loan based on what you earn. Each year, your monthly payments are calculated based on your adjusted gross income, family size and the total amount of your loans.

If you are experiencing an economic hardship, you may be eligible for “deferment.” Under this option, you still have to pay back the loan, but you can postpone payments for a while. Interest on the loan or loans will not accrue during the deferral period. Another option is “forbearance,” in which you can stop making payments for a set period of time. Unlike with the deferment option, interest continues to accrue. But forbearance is easier to get.

What if you have the cash? Should you pay off your loan? That’s what a number of people wanted to know during the online chat. Take a look:

· “I am a 30-year-old single female, who owns a condo, has no credit card debt, donates to charity, maxes out her 401(k) and has $10,000 in emergency savings and $2,000 in regular savings. I also have $49,000 remaining on my law school loans, which were over $140,000 when I graduated. Should I take $10,000 of my emergency savings and put it toward the loans?”

“I’m about to receive $30,000 of the life insurance money that my father requested I use to pay off the student loans. I have $39,000 in loans with interest rates below 3.5 percent. Should I invest it and pull from what grows to continue to make the regular payments? Or should I just pay off a massive chunk of the student loans?”

· “Would it be more beneficial to take out a student loan to complete my master’s degree, or to take the money from my Vanguard fund? I need around $5,000 for the semester. I’m 24 and have about $10,000.”

As to the first woman’s question, I would not totally deplete my emergency stash of cash, but I would take about half of it and put another dent in that debt.

For the second questioner, should you invest money you inherit or pay down your student loan? Your father did know best. Pay down the debt.

And is it beneficial to take out a loan when you can pay cash for your education? No. It’s only beneficial to the lender.

I think all the questions, on some level, stem from the belief that student loan debt is good debt. It’s not. Debt is bad, even when necessary. Conventional wisdom should follow this old Chinese proverb, “A good debt is not as good as no debt.”

Debt consolidation can be an excellent option when you find your finances getting out of control but before you go out and sign up for a debt consolidation loan there are a number of factors you must take into account.

1) Why are you looking to consolidate debt?

The basic principle of debt consolidation is that you take out a single loan and use that loan to repay all your existing credit card debts, loans and overdrafts.

This normally results in lower payments generally spread over a longer term. Before you proceed with debt consolidation you should first consider whether there is a better alternative.

2) Sell assets to clear your debt

Rather than rescheduling your debts see if there is any way you can repay some or all of your debts yourself. Sell unwanted valuables and other items.

Depending on the item you can sell to dealers, advertise in local classified ads or through Ebay. Sell unwanted books through Amazon. If your debts are very high and you own your own home consider downsizing to release equity.

3) Pay more than the minimum off your credit cards.

If you can pay more than the minimum monthly payments you should seriously consider continuing with your existing credit cards and clear the debts over the next 12 to 18 months.

While it may mean restricting your spending in other areas it will be the cheapest option long term. Of course you may still opt for debt consolidation to make managing your debt easier.

4) There are a number of options when considering debt consolidation:

If you are currently only just managing to pay the minimum monthly payments on your credit cards, or your total credit card debt is increasing each month then debt consolidation may be the right choice.

5) A mortgage or re mortgage

If you own your own home the lowest interest rates are obtainable by taking out a new mortgage to pay off your existing mortgage (if any) plus enough funds to repay you other debts.

If repaying your existing mortgage will result in penalty charges consider a 2nd mortgage with your existing lender. The interest charged will probably be slightly but not significantly higher.

6) Take out a secured loan with another lender

If you have already missed or been late with any payments, and as a result your credit score is too low for your mortgagor, consider a secured loan with another lender.

Secured loans in these circumstances are more expensive and the lenders are quick to repossess your home if you miss payments. Only take this route if you are certain that you can make the repayments.

Depending upon how bad your credit history is, so long as you maintain all your payments for the following 1 to 3 years, you can replace this loan with a mortgage or re mortgage once your credit score improves. There will be penalties however if you repay a secured loan early. Ensure you read the fine print.

7) A loan secured on other assets

If you have an expensive car, boat or plane you will probably be able to obtain finance using these assets as security. The rate of interest will be higher than a loan secured on property. If you do not have property or it is fully mortgaged securing a loan on other assets may be an option.

An unsecured loan

If you do not have property or other assets an unsecured loan is often a possibility. An unsecured loan is usually over a shorter term, normally up to a maximum of 7 years but occasionally longer. As a result the monthly payments will be higher but the debt will reduce quickly.

As the lender has no security your property and assets are less at risk if you default. The lender could, however, send in the bailiffs if they obtain a court order.

Because there is no security expect to pay a higher interest rate, particularly if you have a poor credit history.

9) Don’t forget the credit card option.

If your debts are relatively low and you still have a reasonable credit history applying for another card with a 0% or low interest balance could be an alternative to a debt consolidation loan.

Go for a 0% balance transfer if you can realistically repay all or most of the debts in the 0% balance transfer period. If however, there will still be a substantial debt at the end of the balance transfer period go for a permanently low interest rate.

Be aware there may be a 2 – 3% charge on the balance transfer. To ensure you don’t slip back into debt cut up all your credit cards and close paid off accounts.

10) Check all the options before making a decision.

As you research all the options it will quickly become clear if there is one obvious solution. For many individuals there will be more that one option so it is essential check them all out before makuing a final decision. Go to a range of different lenders and mortgage or loan brokers and obtain the best package for you. Remember you have the final say and just enquiring does not commit you to any course of action.

For a great many people debt consolidation provides an ideal solution to excessive credit card debt. Sorting out debt problems takes a little time, effort and determination. Once you’ve sorted your debts you will find life more enjoyable and relaxing and, with no debt collectors calling or contacting you by post or phone, much less stressful.

• Rent or mortgage. Make paying your rent or mortgage a top priority. Payments on a home equity line of credit or second mortgage are also essential because you can lose your house if you don’t pay.
• Car payments. Make the payments. If you don’t, the car will be repossessed.
• Utility bills. These services are important, and the bills usually have heavy late payment penalties.
• Child support or alimony. Not paying these debts can land you in jail.
• Taxes. Taxes may be put off for awhile if necessary, and we show you how to do so later on in the book, but if the IRS is about to take your paycheck, bank account, house, or other property, you should set up a repayment plan immediately.

If you are going to start getting out of debt, you have to stop going into debt. One way to start is to begin to wean yourself from the credit card teat if you think that is part ofyour problem. You don’t have to cut up all your credit cards; that would be impractical and unreasonable. Start slowly, but build up to it and get strong. You can do it. The only way to stop going into debt is to stop going into debt. You might as well start now because the sooner you start, the sooner you will get out of debt. The longer you wait, the longer it will take.

I will post about  how to easily trim your budget (well, almost easily) so that you need not incur more debt to stay afloat. But begin now. You are going to have to stop sooner or later. Down the road you will see that this is one of the most important steps you can take in getting out of debt. You will thank yourself for this gift. Remember the first rule of holes: Stop digging!

Now is the time to begin to think about your longrange financial vision. What is it you hope to accomplish by getting out of debt? Changing some habits? Paying off your MasterCard? Probably what you really want is a less stressful life, one that’s free from money worries. But you can have even more. Getting out of debt is one thing, but prosperity is another thing altogether.

You have read this once already, and you will read it again in this book: If you don’t begin to do some things differently, to change the way you think and treat money, you might get out of debt, but you won’t stay out of debt. If you do make some simple changes to your thinking and your behavior, not only will you get out of debt, but you also will get ahead. You will get what you deserve: a life of abundance.

The Least You Need to Know

Going into debt for essentials makes financial sense; doing so for non essentials does not. Not all debt is bad debt. You may want to keep debts that enhance your life and get rid of the rest.Stop adding to your debt right now. Cultivate a long-term plan of action.

Early Warning Signs of Trouble

How serious are your debt problems? The spectrum of possibilities ranges from negligible to severe. The fact that you bought this book indicates that debt is something you are concerned about. As you read this chapter and review the most common signs of debt problems, consider that the more signs that apply to you, the more serious your situation is.

Where Have All the Dollars Gone?

The first sign that debt is becoming more of an issue in your life than it should be is the incredible shrinking bank balance. Although you make enough to pay your regular bills, more and more of your monthly income goes toward servicing your rising debt. It gets to a point where money is tight, and you feel like you are choking because there is never enough money. Unfortunately, this situation creates a negative domino effect upon the rest of your financial life.

But I Still Have Room on My Card

The first to fall is the credit card domino. Your lack of funds causes you to begin to take cash advances to pay your minimum balances or basic living expenses. You know that your gold card still has about $5,000 left on it, so you begin to use it to live on. Or, even worse, you begin to accept all of those credit card offers that come in the mail, and before you know it, you have 10 open credit cards You take out $100 here and $500 there. “No big deal,” you think. After all, you are used to paying off your cards, or at least paying enough that the debt has not, so far, seemed burdensome. You begin to rationalize. You tell yourself that you’re just in a temporary cash crunch, that this is why credit cards were invented. Feeling better, you take out another $500.

Money Talks

When you use your credit cards to withdraw cash, extra fees kick in. Cash advances carry an upfront fee of up to 4 percent of the amount advanced. There is a higher interest charge for cash advances than regular card charges, and many issuers also require you to pay down the balances for purchases before you pay down the higher-interest cash advance balance. Finally, cash advances carry no grace period; interest charges begin to mount as soon as the ATM spits out the money.

The Balance Transfer Shuffle

“Not to worry,” you tell your spouse or yourself. You have a plan. These stupid credit cards can’t outfox you. You will just transfer your balances from the card with the high balance or the high interest rate to a different card. You are smarter than the credit card companies. Not only do you transfer balances, but you start to use those convenient checks the credit card companies are always sending you. You begin to pay one card with another card. In the meantime, not wanting to upset your precarious financial balance, you begin to use your cards more to pay for everyday things such as food.

The bills grow. Whereas you used to be able to pay more than the minimum, now the minimum is more than you can pay. In an effort to conserve your rapidly dwindling cash reserves, you decide you have no choice but to save money-by using your credit cards more!

Money Talks

Debt got you down? Consider these rules penned by Thomas Jefferson: 1. Never put off till tomorrow what you can do today. 2. Never trouble another for what you can do yourself.

3. Never spend your money before you have it.

4. Never buy what you do not want because it is cheap; it will never be dear to you.

5. Pride costs us more than hunger, thirst, and cold.

6. Never repent of having eaten too little.

7. Nothing is troublesome that we do willingly.

8. Don’t let the evils which have never happened cost you pain.

9. Always take things by their smooth handle.

10. When angry, count to 10 before you speak; if very angry, count to 100.

Relief is in sight. Using your cards more and not spending your precious cash to pay off these credit card balances gives you a (false) sense of security. Your money situation is not that bad. For a few months, things seem back to normal. Anyway, those tiny classified ads you are going to start running all over the country are going to make you rich, and then you will pay off all of your cards, and this situation will be something to laugh about in five years. Then the card with the low interest rate jacks up your rate to 18.9 percent. You have a $10,000 balance on that card! It’s OK. Stay cool. You still have two more cards with room on them. All the while, you are getting deeper and deeper in debt. What do you do? Eureka, you have a solution! You can apply for more cards, get some more low “teaser” rates, and transfer some more balances. So you do, and so it goes. Sound familiar…..