You may be able to work down your debts just by following the advice in this booklet. But it may be easier for you to stick with a plan if you have some regular one-on-one coaching time with a professional financial adviser or credit counselor. And you may have better success over the long term if you have a chance to talk with others who are facing similar problems.

An expert can help you translate the information and suggestions in this booklet and from other sources into a personalized plan that takes into account all of the factors that make your situation unique. An expert can tell you how serious your problem is, whether you’ve analyzed your numbers correctly, if there is other information you should be thinking about, whether it’s worth trying to negotiate with your creditors to reduce your debt payments, and if there are other options for you to consider that haven’t been mentioned in this booklet. And both a credit counselor and a support group can help you put your problems in perspective.

For some reason, it’s considered rude in our society to talk about money. Most people are more comfortable talking about sex, death, or virtually any other painful or awkward topic. But by not talking about our money problems, we end up bearing the weight of our money worries alone. Statistics show that a huge number of people have money problems. A million and a half Americans file for personal bankruptcy every year. Roughly 7 million have trouble paying their bills on time. Many millions more—roughly half of all credit card holders—aren’t able to pay off their credit card balances every month. Yet most of us feel alone with our problems. We think that we are the only ones who have debt problems.

Worse, we feel that there is something wrong with us for being in the situation we’re in—that debt is a sign that we’re not good people, not successful, not worth much.

Being in debt has nothing to do with who you are. Sure, the stress and worry of a debt problem can affect how you act as a parent, a spouse or partner, a friend, or an employee or manager. But the debt itself has nothing to do with how well you do in each of those roles. You’re the same person you were before you got into debt, with the same unique personality and the same strengths and skills. Part of the process of getting out of debt is getting back to feeling good about yourself—giving yourself permission to enjoy life and treat yourself well again.

That can be easier if you talk to people who understand the situation you’re in—people who have been in the same difficulty themselves and worked their way out of it, or people who have successfully helped others deal with debt problems.

That shared experience can help you understand that you aren’t alone with your debt problem. It’s your problem and you have to solve it. But you have plenty of company.

Talking with an expert or joining a support group has another key benefit. Regular meetings give you an incentive to stick with your plan. It’s very easy to slip or to give up when you try to reduce your debt in isolation. It’s harder when you know you have to check in next week or next month with someone else.

The idea of admitting that you’ve made no progress is enough to motivate most people to keep on track.

For some people, a spending plan won’t be enough to solve a debt problem. If your debts are from a severe financial upset—an expensive medical treatment, for example, or a permanent loss of earning power due to an injury or disability—you may need more money than even the most rigorous spending plan will yield, and more help than this
article can offer. Look ahead to the next section, “Ask for help,” and get yourself the help and support you need.

If the goal is to have fewer loans and lower interest payments, doesn’t it make sense to consolidate loans into one larger loan—by transferring balances to a lower-interest credit card or a home equity loan? The surprising answer is: probably not. It’strue that you want to reduce your debt payments. They’re a big drain on your budget. But the way to do this is by reducing your debt, not just by moving the money around.

If people acted like financial-planning machines, it certainly would make sense to consolidate loans. But people don’t act like machines. When they consolidate loans, most people end up running their debts back up on their other credit cards. So they’re left with the same credit card problems they had before—and now a large consolidated loan on top. Consolidating loans seems to encourage people to build up even bigger debts, rather than helping them reduce their debts.

The two main options for consolidating loans each have serious drawbacks. Many people respond to credit card
marketing pitches that offer special low interest rates on balance transfers. But the low rates are usually for a limited time—generally through the end of the year. After that, the rates go back up to levels that are often as high or higher than the rates on other cards. And while people usually intend to pay that card off before the rate goes up, they rarely do. Also, if they use the card for new purchases, in addition to the balance transfer, they find that the special rate doesn’t really apply. A higher rate applies to new purchases, and payments go to pay down the low-rate balance first, which leaves a growing balance of high-interest debt on what was supposed to be a low-interest card.

Home equity loans really do offer lower interest rates. But there’s a reason for that. A home equity loan is “secured” by the value of your home. If you fall behind in your payments, the lender can force the sale of your home to recover your debt. That’s a serious proposition. A home equity loan is only a sensible option for people who already have their debt under control.

The next step is to make a list, using the form on the next page, of all the debt payments you make each month. Include payments on credit cards, store cards, installment loans, home equity loans, payments to repay personal loans to friends and family—payments on everything you owe to anybody. (Don’t include mortgage payments. Like rent, they are a basic housing cost. And unlike your other debts, you can pay off your mortgage at any time by selling your home.)

For each debt, list

* The name of the creditor (the bank, credit card, business, or person to whom you owe money).
* What you normally pay (what you’ll pay this month if it varies).
* The total amount you owe (the exact amount from your most recent bill or statement).
* The annual interest rate that is applied to the balance. (If that interest is set at a special low rate for a limited time, write down the date that it will go up.)

The interest rate may be hard to find. It may be buried within the small type on the back of your bill. If you can’t find it listed on your bill or statement, call the creditor and ask what interest rate is being charged on your account.

Many credit cards have different rates for balance transfers, purchases, and cash advances. Your bill should show how much of your balance falls into each of these categories, and what the interest rate is for each. If you have balances in more than one category, estimate or use a calculator to figure out what the average interest rate is for the entire balance on that card.

Once you write this information on a list, it’s easy to see how big or how small your problem is. Many people with debt problems resist making a list like this because they’re afraid it will show their debts to be frighteningly large. But the surprise is often that the total is smaller than expected. That’s because money worries can push people to inflate their debts to impossible size in their imaginations.

Knowing the actual number grounds you in reality and lets you get down to the business of chipping away at your debts to make them smaller and more manageable. When it comes to getting out of debt, knowledge really is power.

Now you’re ready to come up with a debt repayment plan. If you can find another $50 or $100 each month to pay toward your debts, you can start to wipe them away—one by one, month by month.

Look back at your monthly spending chart and the amount you decided that your spending plan would save every month. Divide that savings amount in half.

This is how much you can add to your debt payments, starting this month. (You’ll put the other half into a savings account as a cushion against any interruption in your income or unexpected expenses. We’ll discuss this in the last section. If you already have $2,500 or more in a savings account, then you can apply the entire amount saved from your spending plan to reducing your debt.)

Now look at your list of debts. Choose one to pay off first. It should either be the one with the highest interest rate or the one with the lowest balance. It’s your choice. The one with the highest interest rate is costing you the most every month.

You’ll make a bigger impact on your spending if you pay that one off first. But the satisfaction of paying a loan off completely is an important motivation, and that will happen sooner if you choose the loan with the smallest balance.

Starting this month, add your extra debt-payment allowance (the amount you calculated above) to your payment toward the debt you’ve singled out. So if you had been paying the minimum of $20 a month on a credit card bill and you’ve decided you can add $50 to your debt payments, you’ll pay $70 a month toward this card. Keep making your regular monthly payments toward the other debts. You’ll get to them next.

An extra $50 or $100 payment every month may not seem like much, but it makes a huge difference in how long it takes to repay a debt and to the total amount you pay. An extra $50 per month can reduce the time it takes to pay off a $4,000 credit card balance from 45 years to less than six years. And it can reduce the total amount of interest you pay from more that $11,000 to less than $2,000. Paying an extra $100 per month reduces the payoff time to just over three years and the total interest to just over $1,000.

As you focus your repayment efforts on that one debt, you’ll have the satisfaction of seeing the balance shrink over the course of several months until it finally disappears. When that happens, it will be time to move on to the next debt.

(As with the first one, you decide whether it’s the loan with the smallest balance or the highest interest rate.) And here’s where the magic of interest rates starts to work in your favor. When you pay off the first debt, you free up the money you were paying in interest on that loan. Now you’ll be able to pay even more each month toward the second debt. And the speed of your repayment plan will begin to pick up.

Let’s say you were paying $70 a month toward the first loan (the $20 minimum payment plus the $50 you added). And let’s suppose the minimum payment on the second loan is $30. You can actually afford to pay $100 a month toward that second loan now (the $70 you were paying toward the first loan, plus the $30 minimum on the second). You just need to keep to your spending plan. You’ll be paying the same amount of money toward your debts, and those debts will be disappearing faster.

Stick with it

This four-step plan is a sure-fire way to reduce your debts. It’s a strategy that’s worked for thousands of people who have overcome serious debt problems.

It’s the basis of the support offered through professional debt counseling and through groups such as Debtors Anonymous. But it’s not a quick fix. It takes time. And it takes your steady commitment to stick with the plan. You may be tempted to skip a month sometimes or to make an exception and charge something on a credit card or store account card. Nobody will stop you.

It’s your money, your debt, and your responsibility. But from your own math and the graphs in this booklet, you can see that any slips will set you back and delay the success of the plan. Just as debts can “snowball” and build up to get you in debt trouble, so a debt repayment plan can snowball in the opposite way, picking up speed and becoming easier as you shed more and more of your debt interest payments.

So stick with it. And watch as your debt steadily dwindles until it finally disappears.

A “no debt spending” policy will push you to pay more attention to your spending. The next step is to get a clear picture of that spending and develop a new spending plan.

You might think you already know how you spend your money. You know what your rent or mortgage is. You have a good idea of how much you spend on groceries. You may know how much you spend on transportation or gas. But without tracking your spending, you’ll find you don’t really know where all of your money is going.

If you doubt this, take out a piece of paper and write down how much you made last year. Then total up those big categories of expenses you can track in your head. When you compare what you made to what you spent—at least in this quick measure—you’ll probably find that you should have ended the year with extra cash to put into a savings account. How does that compare with what really happened?

The reason it’s such a valuable exercise to track spending is that we have too many expenses to keep track of in our heads. And it’s the daily cash spending and the extra expenses—like car repairs, meals out, or holiday gifts—that push us into debt spending.

Track your cash spending

At the back of this booklet, you’ll find a set of tear-out slips for tracking your cash spending. Tear out the slip for today (or for tomorrow, if it’s late in the day and you want to start with a full day’s spending) and put it in your wallet with your cash. For one day, use the slip to write down every bit of cash you spend and what you bought with it—just like you use the register in your checkbook to make a note of the checks you write. Keep it simple so this doesn’t become a burden. All you really need to write down is the amount spent and what you spent it on.

Try it for a day. You’ll be amazed at how easy it is and how much it shows you. It takes just a minute or two to make the notes over the course of the day, and for that small effort you’ll find out just where your money is going. You won’t wonder any more what happened to that $50 or $100 you put in your wallet. You’ll know. Once you see how easy it is, keep going. Track your cash spending every day for a week. Here are a few ground rules to make sure you get the full benefit of the exercise:

* Track your spending every day (not just on the days you remember to do it). If you skip a day, you’ll have a hole in your knowledge, a hole that could lead you to miss an important drain on your cash. If you find this hard to do, move your cash into an envelope and make your notes on the outside of the envelope. For some people, this is a better memory trigger.

* Track every cash expense, whether it’s for $25 or 25¢. If you skip some because they seem too small or because they’re not part of your regular routine, you won’t have a clear picture of your spending. You’ll still be trying to manage your money in a fog.

* Make your notes as you spend the money. Keep a pen or pencil with you or borrow the store clerk’s to make your note. If you wait and try to make your notes at the end of the day, you’ll forget some. You’ll still be operating in a fog.

* Track spending to the penny. Small change matters over the course of a week or a month.

Track the checks you write and payments you make with debit or ATM cards

Paying by check or debit card is the other main way people part with their money. If you’re in the habit of recording every check you write and every payment you make with your debit card, that’s good. If you’re not in that habit, now is the time to start. Every time you write a check, write down the number of the check (so you can be sure you haven’t missed any), the date, to whom you wrote the check, what it was for, and the exact amount of the check (to the penny). Every time you pay with your debit or ATM card, write the amount in your checkbook register just as you would with a check.

With this information in your checkbook register and the notes you’re making on your cash spending, you’ll be able to build a complete picture of your spending over time.

What about spending by credit card or charge card? Should you be tracking that, too? No, for two reasons. The first, and most important, is that you aren’t using those cards right now. For today, you’re not adding to your debt. The second is an accounting reason. You’ll make payments on those cards to pay down the balance, and those payments will come from your checking account. What you’re tracking here is the money as it leaves your checking account and the cash as it leaves your wallet.

Combine your notes into a weekly and monthly spending record

Once you have a few days of information on your spending activity, the next step is to start combining your numbers into a weekly and monthly spending record. A monthly record is the most useful measure, since so many expenses fall into a monthly cycle. A simple way to track spending by week so that you can total it up by month is to divide your weeks according to the days of the month.

* Week 1 starts on the 1st of the month and ends on the 7th
* Week 2 starts on the 8th of the month and ends on the 14th
* Week 3 starts on the 15th of the month and ends on the 21st
* Week 4 starts on the 22nd and ends on the last day of the month (so it will usually be a nine-or ten-day “week”)

When you track spending this way, your “weeks” will sometimes start and end in the middle of a week, and the fourth week won’t be a true week at all. But four “weeks” tracked in this way will make a full month, and will include all of your monthly housing and utility expenses.

You can use the form on the next page for this tracking. Feel free to change the categories or add categories to make it easier to group your expenses. Just don’t make it too complicated. The idea is to get a clear picture of your expenses, not a microscopic image of every detail.

Make a spending plan

If you’re like most people with debt problems, you’re in your current financial state simply because you’ve spent more than you earn. Now that you see how much you’re spending (in the chart on the previous pages), you can make a plan to cut that spending to a level that will not only keep you from adding to your debt, but let you pay down your debt more quickly.

When most people begin to track their expenses, they find a couple of big surprises which then become the biggest opportunities for trimming their spending. It might be meals out. It might be books or movies. It might be car expenses.

Whatever the surprises are for you, start there. The far right column of the chart, labeled “Spending Plan,” is where you should write down a realistic new goal for that category of spending.

In some cases, when people line up their expenses with their income, the expenses are so much higher than the income that drastic steps need to be taken. They may need to sell an expensive car and replace it with a less expensive model, or perhaps get rid of the car altogether and rely on carpools or public transportation.

They may need to move to less expensive housing. This can happen when income is cut back, either through a change to a lower-paying job or a reduction in overtime pay. It can also happen when people move into a higher-paying job and overestimate how big an impact the change will have on take-home pay. If you’re in this situation, it may help to talk with a debt counselor to get an expert opinion on what’s pushing your budget so far out of balance. A good financial counselor can help you understand whether a drastic change is needed.

Almost always, though, it’s not the home or the car, but the casual spending on meals out, music, movies, electronic equipment, and other “impulse” extras that have to be trimmed to make a healthier spending plan. And extra money can almost always be found through smarter shopping for the things now bought at too-high prices.

The goal of a spending plan is actually very modest: to bring expenses into line with income, so that you stop adding to your debt, and to come up with an extra $50 or $100 a month to put toward debt repayment.

Here are some ways to trim spending that have worked for other people. Once you’ve looked them over, go back to the chart on the previous pages and find a few areas where you can realistically cut your spending—without trimming all the pleasure out of your life.

Entertainment

* Rent a video instead of going out to a movie or the theater.
* Borrow videos, music recordings, and books from your local library or from friends.
* Have potluck suppers instead of dinner parties.
* Go to museums, gallery exhibits, zoos, and aquariums at times when admission is free or reduced. Find out if your library offers free museum passes.
* Trade babysitting services with other parents or join a babysitting cooperative.

Eating out

* Eat out less often.
* When you do go out to eat, leave your credit card at home. Pay with cash.
* Look at the menu and the prices before you go into a restaurant. If there isn’t a menu in the window, ask to see one before deciding whether to eat there.
* Don’t order drinks with your meal. Stick to water. If you do order drinks, limit yourself to one per person.
* Don’t order dessert. Order coffee if you want an extra ending to your meal.
* Bring leftovers or a sandwich to work for lunch.
* Make coffee at home and bring it in a thermos to work or to school.

Food

* Read the newspaper and the advertising fliers that come to your home. Compare prices and look for bargains.
* Clip coupons and use them to buy the items and brands you use regularly. (Never use coupons to try a new item or to buy something you wouldn’t have bought otherwise.)
* Shop from a list. Make the list from a weekly menu.
* Eat before you shop for groceries. You won’t be as tempted to buy extras.
* Join a discount club (such as Price Club, Costco, or BJ’s Wholesale Club) to get lower prices on such staples as paper goods, cereal, coffee, and peanut butter.
* Don’t buy soft drinks, pastries, chips, or other junk food. A baked potato, chopped vegetables, a sandwich, or leftovers from dinner make healthier and cheaper snacks.
* Buy less prepared food, and prepare more food yourself.

Getting around

* Shop for the best price on car insurance. See if you qualify for insurance discounts (for a good driving record, AAA membership, or low mileage).
* Have repairs done by muffler, transmission, brake, and tire shops. These services often do work at about half the price of car dealerships.

Clothes

* Shop from a list and pay with cash. Bring only enough to buy what’s on your list.
* Buy on sale—after Christmas, Easter, and the 4th of July, when seasonal clothes are discounted.
* Buy clothes in colors and styles that go together, so that they can be worn in many different combinations.
* Buy higher quality clothes at the best price you can find. Look for classic designs, solid construction, and materials that last.
* Buy washable clothes, not clothes that require dry cleaning.
* Trade clothes with friends or relatives as a way to expand your wardrobe.

Household

* Cover drafty windows using a plastic storm-window kit. Lay a rolled-up towel or a special sand-filled fabric “log” along the bottom of any doors that let in cold air. Seal window and door frames with caulk.
* Keep window shades down to block out the sun in hot weather. Leave shades up to let in warming sunlight on cold sunny days.
* Write letters or send e-mail messages instead of making long-distance phone calls.
* Shop for the best price on telephone, cell phone, and Internet access plans. Consider dropping your cell phone service.
* Discontinue cable TV, or cut back on optional channels.
* If you have a weekly cleaning service, cut back to every other week or drop the service and do the cleaning yourself.
* Buy a neighborhood lawn mower, snow blower, hedge trimmer, or barbecue grill.

Health

* Walk, run, or bicycle outdoors. Healthy exercise can be free.

Extravagances

* If you spend money on cigarettes, alcohol, drugs, or gambling, seek help. If you have debt problems, you can’t afford an expensive habit.
* Look at money you may be spending on an expensive hobby or high-priced lessons or programs for your children. Fun for you and enrichment and learning for your children don’t have to be expensive.

Make an earning plan

For most people, the key to getting out of debt lies in more careful spending. But you may also have some opportunities to increase your income, which is the other way to come up with more money for debt repayment. Just be careful not to let your debts push you into a miserable grind of round-the-clock work. The goal is to get your debt down to a level where it no longer controls your life. You want to be in control of your money and your life.

Workaholism is not the answer. Finding ways to enjoy life while living within your means is ultimately the path that will lead you out of debt.

With that caution, there may be ways to turn your new focus on finances into extra money. You might:

* Have a yard sale
* Sell a valuable item by advertising in the newspaper or offering it for sale through an online auction site
* Turn a hobby or a special skill into a money-making activity
* Collect any old debts that others owe to you
* Find a part-time job to supplement the income from your primary job
* Take in boarders or find a roommate
* Provide repair or chore services to older people in your community who need help

Jot down any ideas of your own in the space below. Refer back to your list and add to it as you try out your spending plan. You may find that some extra income helps you get your debts down even faster.

Write down your new spending goals for every category of your spending. Some may not change at all and you may be able to cut others dramatically.

Now estimate how much you can save every month if you follow your plan. Add to that any extra money you think you can make. Write the amount down at the bottom of the chart.

This is what you’ll be able to pay each month, starting now, toward reducing your debts and building an emergency savings account.

Take your credit cards, store cards, and gas cards out of your wallet or pocketbook and put them in a drawer at home. Starting right now, get through an entire day without borrowing money or charging anything. Pay cash, write checks, or use a debit or ATM card.

You’ll find that this in itself cuts your spending and pushes you to make only planned purchases. It will also show you what life feels like without debt spending.

Most people are surprised at how easy it is to make the switch. Even travel and car rentals can be managed with cash and checks. A bank debit (or ATM) card is an easy alternative. It can be used just like a credit card, but without the debt effect.

The money comes right out of your bank account every time you use it. Once you get through today, you can decide about the next day. And if you manage that, take on another day.

After a week or so of no-debt spending, you’ll be ready to make an even bigger commitment. Keeping credit cards in a drawer at home is like closing a gate on a problem and not locking it. If you have a real debt problem, you need to lock the gate. Cut up your credit cards. And cancel the credit reserve or overdraft feature on your checking account. This will feel like a drastic step—like slicing through your safety rope when climbing a steep cliff. But in fact it’s the access to credit that’s the biggest danger to you until you get your debt down to a healthy level.

Later on, once your finances are back under control, you can decide to ask for a new copy of one of your cards.

What about emergencies? Before 1970, people got through every imaginable emergency without credit cards. Try to imagine an emergency where a credit card would really make a significant difference. It’s not a hurricane or a flood. It’s not a fire. You’d just get cash from the bank. The only emergency a credit card can help you through is the “emergency” of running out of money in your bank account.

What about renting a car? It’s a myth that you need a credit card to rent a car. A debit card works just as well. And most rental agencies are happy to rent a car if you have good identification (a driver’s license and one or two other forms of ID) and a cash deposit (generally in the range of $75 to $300). It’s a little more trouble than a swipe of a card, and it’s worth making sure of the details in advance, but people do it all the time.

Only you can solve your debt problem. And you can only solve it if you decide that it’s a problem worth solving.

There are a few ways of making that commitment. Some experts recommend writing a statement owning up to the problem and signing it. Others suggest that you call a family meeting and have an open discussion of the debts you face.

A debt problem is rarely felt or solved by just one person, and the ideas and efforts of every member of the family may be needed to get you back in the black. People often find that this open acknowledgment of a debt problem is a relief to the others in their families. And it usually comes as no surprise.

The other effective way to make a commitment to solving a debt problem is to talk with a financial counselor or attend a meeting of others with debt problems.

(You’ll find some ways to make these connections in the next section, “Ask for help,” in later articles about debt.) Talking about a problem pushes you to admit to yourself that you really do need to take action. Knowing that you’ll be expected to talk again to that same person or group and report on your progress is also a powerful incentive to act—and to stay on track once you start. And finding other people who understand your problem and who have come up with ways to deal with similar problems can be a huge relief if you’ve been shouldering this worry yourself for a long time.

If debt is part of the engine that drives our economy and if it’s such a wonderful convenience, what’s the matter with being in debt? What’s the down side?

The “snowball effect” of debt

Part of the problem is obvious. You build debt because you don’t have the money to pay your expenses, and the debt then adds to your expenses for months and years to come. That makes it more likely that you’ll need to borrow even more to pay your expenses in the future. Paying with debt solves the immediate problem, but it creates a bigger problem down the road. Once the debt cycle gets rolling, it takes real effort to turn it around.

The cost of interest

The second problem with debt is that it’s expensive. It would be hard enough to pay back growing debts if you just had to pay the amount you borrowed.

But you actually pay much more than that when you add in interest and latepayment fees.

Let’s look at a typical credit card that charges 18 percent interest and imagine that you have an unpaid balance of $1,000. If you make the minimum required payment of 2 percent each month, that comes to $20. That seems reasonable and manageable.

If you pay $20 the first month, you might expect your balance to go down to $980. Then to $960 the second month. At that rate, you’d pay the balance off in just over four years. But it doesn’t work that way. This kind of calculation ignores the effect of interest.

Actually, your account is charged 1-1/2 percent interest each month (18 percent divided by 12). That comes to $15 the first month. So you pay $20, the bank adds $15 in interest, and the balance drops by just $5—to $995. Instead of taking four years to pay off the balance, it will actually take eight years. And instead of paying back $1,000, you’ll actually pay back $2,000. That’s if you’re on time with every payment and aren’t charged any late fees.

If you’re making just the minimum payment on a credit card that charges 18 percent interest, you’re actually paying twice the price on the label or the receipt every time you buy with that card. So a $60 pair of shoes will actually cost you $120. A $50 meal will actually cost you $100. Try doubling the total next time you pay for something with a credit card and see if it seems like a good value.

The emotional cost of debt

The third cost of debt has to do with your emotional well-being. When your debt total is going up instead of down it can leave you feeling trapped, desperate, and not in control of your life. You can feel that someone else “owns” you, to the point that you deny yourself the breaks and pleasures you need to stay healthy and happy. A debt problem can drain your sense of confidence and self-worth.

It can lead to depression, unhealthy anxiety, and health problems. The emotional effects can damage your marriage and your relationship with your children, friends, and extended family. Money problems are the single biggest factor in relationship problems that end in divorce. Debt problems can affect your performance at work, pushing you to overwork in a “nose-to-the-grindstone” way, and keeping you from contributing with energy and creativity in ways that add value to your employer and lead to bonuses, raises, and promotions.

Debt is clearly a two-edged sword. Used wisely and carefully, it can help bring you greater happiness and prosperity. Used casually and without careful planning, it can lead to economic crisis and intense emotional stress.

We all know, at least at some level, that we should have enough savings to weather a financial setback—the loss of a job, an injury or illness that interrupts or reduces income, or a costly expense. We know that we should be steadily building up our savings—for retirement, our children’s education, or for the down payment on a home. We know that increasing our savings and reducing our debt over time is good for us. Yet the great majority of us don’t behave as though we understand this at all. For the population as a whole, the rate of savings is shrinking, and the level of personal debt is rising.

Why do we often act in irrational and self-destructive ways with our money? A big part of the answer is that we aren’t calculating machines. We aren’t very rational. We’re human beings with complex emotional needs. And access to money and credit plays to our emotions in ways that are hard to control.

At a primary level, there’s the tension between “now” and “later.” Spending brings immediate pleasure. We don’t enjoy the benefits of saving—or the pain of debt payments—until later. We may think of ourselves as mature adults, but there’s still a lot of the two-year-old in each of us. “I want it now” can easily overpower “But think about later.”

The way we behave with our money is also deeply rooted in our experiences, especially in childhood. For example, if you grew up with a parent who was a disciplined saver and never spent money on fun extras, you may find it easy to follow that model yourself. Or you may find yourself behaving in ways that are a reaction against that early experience. At a level you may not even be aware of, you may view savings as an unhealthy form of self-denial and spending as a way to achieve a more balanced and happy life.

If you grew up in a household where there was never enough money, you may find yourself driven to make money, even at the expense of your own or your family’s happiness, or to spend beyond your means in very visible ways. Early experience with money might be driving you to be overly cautious with your money, or to take unreasonable risks.

Behavior patterns with money are also set early in life and can be hard to change. Older people, who established their spending and savings habits before the introduction of credit cards, tend to use credit cards as a convenience and not as a way to borrow. People who started their careers before 1970 are far more likely to pay off their credit card balances each month than are people who entered the work world after 1975. People old enough to have experienced the financial trauma of the Depression tend to be very cautious when it comes to debt and savings and very aware of maintaining a cushion against a possible money setback. And people who entered the work world during the boom of the mid-to late 1990s are more likely to have a freer and more optimistic outlook on their finances than people who have had trouble finding a job during an economic recession.

A good way to get a better understanding of your relationship with money is to talk about it with a trusted friend. Share stories of ways you’ve acted with money and talk about experiences you had with money growing up. If you’re like most people, you’ll find a connection between the two. The more you understand about why you act the way you do with your money, the better you’ll do at noticing and dealing with things you do that may hurt your financial health.

Debt isn’t limited to credit card spending. We give credit cards extra attention in this article because they offer such an easy way to get into debt. But there are plenty of other opportunities, too. Here are a few:

* Loans from parents and other family members to pay for unexpected (or at least unplanned-for) expenses—a major car repair, a plumbing emergency, winter coats and boots for your kids

* Money borrowed from friends to cover lunch or small expenses

* Gas station cards

* Store account cards

* Paying late, or over time, for services such as dental work and car repairs

* Stretching your budget by paying regular monthly bills late (in effect, borrowing from the companies to which you owe money)

* Payday loans (loans to cover expenses just before payday—generally at very high interest rates)

* Advances on wages or commissions from your employer

* Borrowing from a life insurance policy

* Credit reserve or overdraft privileges on a bank checking account

These are all ways to pay for things you need before you have the money to cover the expense. And they’re all ways to accumulate debt.