7 Ways to Avoid Debt Hell

The winners of the Savings Tips give-away are Samantha Travenor and Sheena Beaverton. Please send me an email (getgvo@gmail.com) with the word WINNER in your subject line,  your snail-mail address, and whether you'd like the Canadian or U.S. version of Debt-Free Forever and I'll have your books out to you licketysplit.

STAY TUNED: I'll be publishing many of the tips I received for y'all to enjoy. There were some great entries. Thanks for playing.

Going into debt is sometimes a choice. We make the choice when we buy something we can't afford to pay for, every time we don't bother to check to see if we have enough money in the bank to get to the end of the month, every time we waste $5. But sometimes there are life events that can contribute to pushing us into debt:   illness, widowhood, divorce. If you are managing our money wisely, those life events will be a lot less painful.

#1 Get yourself some money management skills. That's right, money management is a skill and, unfortunately, loads of people are missing it. They fly by the seat of their pants hoping that things will turn out okay, and end up fire-fighting to stay afloat. A lack of money management skills is, perhaps, the biggest predictor of financial failure. All the credit counseling, all the bankruptcies, all the income in the world isn't going to save your butt if you don't take the time to figure out how to use what you've got to your advantage. There are rules to follow, work to put in, and self-control to be applied. It's much easier to simply whine, "I can't" and go happily on shooting yourself in the foot.

#2 Set up an emergency fund. Whether you bought the marketing B.S. that "a line of credit is an emergency fund" or you're using the excuse that interest rates are pathetic and your money would just be idling, you're deluding yourself if you don't have an emergency fund. If you're not willing to live on a little less now so that you'll have a cushion set aside just in case, you'll be pushed into Debt Hell in no time flat. With six months' worth of essential expenses in the bank, getting sick won't also make you financially ill. Having money in the bank means you have options.

#3 Work harder. Some people are just born lazy. Some people think that earning $14 an hour for 37.5 hours a week is just fine. It may be, if you're prepared to live on $400 a week. But most people aren't. They want to buy beer. They want cell phones and premium cable. They want to buy everything else their pals have. And they use the excuse that working more would take away from their Mommy or Daddy jobs. Ya know what? That's an excuse for not wanting to work harder since many of those same people spend hours a day doing stuff that doesn't involve their kids. Those are the hours you could be spending making more money.

#4 Keep your income and expenses even. There are people who buy a home and think they can still eat out six nights a week. And there are people who get laid off from work, become ill, or stay home to raise their children, but don't cut back on their spending. Whether your income has gone down or you've made a move that sends your expenses up, if you use credit to fill the gap in your cash flow, you're stepping onto the road to Debt Hell.

#5 Buy some insurance. Some people believe they will never get sick. It's why people don't bother to get critical illness insurance, disability insurance, or life insurance. Of course, you may not be the one to get sick. It may be your partner, at which point you better have some money to help pay for the things (s)he used to do. Or it may be a child or an elderly relatively that causes you to lose time off work.

#6 Talk about your money. How can you have an intimate relationship with a partner and then refuse to talk about your money? How weird is that?  You love each other enough to make a life commitment but aren't willing to talk about how to manage your money as a team? Perhaps it is because one or both of you don't want to be held accountable and so long as no one's watching, you can just do whatever you want. Or maybe your self-esteem is bruised because your partner makes more and throws his/her weight around. Whatever the reason, Debt Hell is around the corner.

#7 Don't bank on a windfall. Count all the people who aren't saving for their retirement in this group. Ditto the people who aren't putting money away for an emergency. And all the people buying lottery tickets instead of saving. Or the ones counting on their parents croaking and leaving them a pot of money. Like magic, money will fall into their laps and they will be able to right all their financial wrongs. Except that most people who benefit from a windfall end up in debt anyway because they never had the discipline and strategies for money management in the first place. More money isn't the answer. Focus and a plan are.

Having a balanced financial plan is so important. Sure you can forgo one leg of your financial plan because you're trying to make another stronger; giving up saving until your debt is repaid is the classic example. But don't fool yourself into thinking you've got a balanced plan. For like a table with a weak leg, it'll only take a little pressure in the wrong place to make the whole thing fall down go buff!

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