For years many consumers have been in denial regarding their debt and personal finances.  This was made easier by the almost guaranteed availability of [...]]]> The following is a guest post from Tisha Tolar.  Ms. Tolar  is a writer for DebtFreeDestiny.com, where she provides information about credit card consolidation, debt relief and how to get out of debt.

For years many consumers have been in denial regarding their debt and personal finances.  This was made easier by the almost guaranteed availability of credit to just about anyone with a job.  Don’t get me wrong, not every person in the country has been charging their way through the last few years, but a good portion of the population simply seemed to forget that one day they would in fact reach their limit. 

One of the positive results of the recent recession is the new found awareness of the need to properly manage your money and live within or preferably below your means.  With so many people suffering job loss and dwindling savings, the reality of their debt situation has been brought to the forefront.  This has been a hard yet necessary lesson for people living beyond their means and has caused many consumers to re-evaluate how they are handling their money.  Now as those same people work to reduce their debt and save more money, they are faced with another issue looming on the horizon.  Once debt free, what will they do to remain so in the future?  Here are three tips to help people stay debt free.

• Understand how you got in debt-  We all know that getting in debt is much easier than getting out of debt, but for some people it is important to know what exactly led them to that position. Was it a financial hardship, such as unemployment, injury, divorce or some other issue that you had little control over?  Or did you find yourself in debt as a result of not paying attention to your finances?  Knowing how and why you got in financial trouble the first time around can help you avoid the same mistakes in the future.
• Lose the “I’m already in debt attitude”-  If you have successfully paid off debt in the past, you know how hard it is achieve debt freedom.  Unfortunately there are just some people who are hardwired to believe once they have a debt, any debt, they might as well continue to charge purchases because they already owe money.  I know, it is a backwards way to think but believe me, it happens.  Consider you have a credit card that is paid off, then you have to make a purchase using that card.  Well you already have to pay that off, so what is another twenty, fifty or hundred dollar charge.  That is how many people with thousands of dollars in debt start out.  If you must use a credit card for an unexpected expense, pay it off as soon as possible and avoid charging other purchase on that card.
• Save your debt payments-  When you think about it, if you are able to pay hundreds of dollars toward debt repayments you can likely live without absorbing that money back into your budget once your debt is paid off.  Take all or even some of that money and start socking it away in savings or investments for your future.  You will be amazed at how quickly that money will grow, which will put you in a better position to avoid needing credit cards or loans in the future should unexpected expenses arise.

Getting out of debt is hard work and undoubtedly not easy.  If you have made the effort and sacrifices necessary to pay your debt off once and for all, make sure you have learned from your past mistakes.  By changing your lifestyle and your way of thinking it is quite possible to change your financial future.

I have always been aware that people regularly carry balances on [...]]]> The more I learn about personal finance and the more people that I talk to about money, the more I realize that I have grown up with a very atypical view of credit cards.  I think that has helped me more than I ever knew.

I have always been aware that people regularly carry balances on their credit cards and use cards to spend beyond their means.  But I was unaware how many people are completely comfortable with this situation, and not only do they not have a plan to pay off the cards, they don’t care that they don’t have a plan to pay off the cards.

Maybe this is not news to anyone but me.  Obviously, the way people get into major credit card debt in the first place is by spending in this manner and just paying minimum balances every month and not paying attention to the total balance of the bill.  But at some point, I thought it set in that “Hey, I should pay this off.”  Maybe not for everyone, but I am surprised at the number of people who claim to be smart about their money and who read personal finance books and blogs but who absolutely don’t care about their credit card debt.

How can you not care about paying a crazy amount of interest every month??

Now, I’m not trying to say that people who choose to carry a balance on credit cards are making a bad decision.  But I think it truly needs to be an informed decision.  I understand the use of 0% interest cards, and I understand the use of cards with very low rates.  I’m aware that a lot of people will put large purchases on a card with a plan of how to pay it off.  These are all perfectly understandable decisions.  And I understand that sometimes emergency situations mean that you spend more money than you can afford to spend and end up with a high balance on your credit card.  While that may not be an informed decision, it might not be one you can avoid.

But shouldn’t there be plans to pay it off?  Even if those plans cover five years, there still should be plans.  I really struggle to wrap my mind around this concept. 

I wonder if it all relates to the level of consumerism in the world today.  We are constantly barraged with advertising telling us that we should have this or we need that.  And the credit card companies tell us “Sure!  Go ahead and buy it.  We’ll cover you.  Yes, over the long run, you will be paying significantly more than the purchase price for that item, but you shouldn’t care about that because you will have the item in your hands right away.” 

I can’t say that I have a solution to this.  I would have said that educating people about credit card debt was the solution, but people who do supposedly know about credit card debt still find themselves in these situations and remain quite content with their current level of debt and make no plan to rid themselves of it anytime soon.

Other thoughts?

By this point in time, she had figured out her debts and recorded her expenses for a month. As I recommended, she created categories for herself and [...]]]> My friend finally came back to me for the next step on her plan to financial fitness. You can find step one here and step two here.

By this point in time, she had figured out her debts and recorded her expenses for a month. As I recommended, she created categories for herself and categorized every expenditure. Luckily for her, she’s a lot like me and does most of her spending with credit and debit cards, so she she had an easier time figuring out what she spent and where she spent it.

I had a feeling that she had already done the third step when I talked to her. I told her that in my mind, the third step was looking at those already categorized expenses and figuring out where she was overspending and where she could cut back.

I was right. This was something that she had immediately considered after seeing all of her expenditures categorized in that manner. She quickly realized that she was spending entirely too much money at bars and restaurants, and she felt that she was spending too much at the grocery store as well. I laughed and told her that those were the same things that I had noticed when I started categorizing my expenditures.

My suggestion, therefore, was for her to attempt to cut back in those areas. She could start her saving plan by making small changes, rather than trying to cut back all of her spending. I suggested that she do simple things, like bring her lunch to work, but I also suggested that she make a point of not opening a tab at the bar. It’s all too easy to find that you’ve spent $50 on expensive drinks when you just have the bartender charging things to your tab.

Additionally, I told her that one thing I did to reduce my grocery budget was to create a list and stick to it as closely as possible, allowing myself one “extra” item a trip. I also suggested adding up her groceries in her head as she placed them in her cart. It makes it easier to stick to a budget. I even suggested she bring a small calculator to the grocery store if that made things easier. No one would look at her funny – I’ve noticed people with price books and calculators at the grocery store on more than one occasion.

She agreed that these were things she could try, but she was eager for other information. So I suggested she gather her bills – her cable bill, her cell phone bill, etc., and see if there were any fees or services that could be eliminated. Even if you drop a $5 service from your cell plan each month, that’s a savings of $60 a year for a very easy step!