“Baker” (as he’s known) exploded onto the personal finance blogging scene a couple of years ago as he wrote about his family’s decision to sell most of what they owned and travel the world (with their 2-year old daughter) while living a simple lifestyle and paying down debt.

More recently, Baker and fam drove around the country in an RV before setting up camp for a while in Asheville, NC to work on his next project, You Vs. Debt (yes, it’s an affiliate link), a six week daily video course designed to motivate you on the road out of debt.

CHANGE YOUR ENVIRONMENT, CHANGE YOUR LIFE

Last Friday night, we talked for a bit about one of the concepts he discusses in You Vs. Debt—how to influence positive change by altering your environment. Here are some excerpts; a link to download the entire transcript follows. 

David: So last week you posted on your blog a sample video from the course. Maybe just for those who haven’t seen it yet, tell me a little bit about that video that you posted and why you chose it.

Baker: So that [video] talks about crafting your environment to support habit change, So week one of the class, of the course, we take the whole week to talk about how you go about habit change. And we use the motif or metaphor from the book Switch: How to Change Things When Change Is Hard, it’s a great book. If you haven’t checked it out, David, I strongly suggest that you read Switch, it’s by Chip and Dan Heath. And in it it describes how to go about habit change, on what they call the Rider, the Elephant, and the Path.

Really quickly, the rider rides this big elephant through the jungle. The rider is our logical brain, it’s a small part of the equation but it’s important because it kind of guides the elephant.  And the elephant in the metaphor is the emotional side of the brain.  It’s the big beat that’s gonna get us through the jungle, but it’s the part that most of us leave out when we go about habit changes.  And then the path is sort of the path that runs through the jungle.  So their advice when going through the path, their advice for going through the path is to shape the path to make it easier for the rider and the elephant to get through the jungle.

And what they mean by that is you craft your environment, your surroundings, the people that in your life, events, the environment, your activities, your daily activities, if you change those and craft those, if you have the change that you’re trying to live in your life whether that’s, finance, or quite smoking or whatever, it’s much easier.  So the video on day four, we are talking about environment and how to change that to make a financial turnaround, does that make sense?

David: It does, yeah.  And why I picked up on that particular video is I really love the idea, as I’ve written about and studied personal finance, gone through my own transformation of paying off debt and starting to save, and going from being a spender to a saver.  Behavior change has been huge for me, and learning about it, I wouldn’t have been successful doing it if I wasn’t able to do the things you’re talking about – shaping my environment, taking things that used to be triggers to spend money and removing them from my life.  So I really love that idea.

And what I’m interested in talking about today is a little bit about what you learned in researching this about shaping your environment.  Whether it’s paying off debt, or like you said, whether it’s quitting smoking, or exercising more, what are a few of the tools or tricks that you’ve come across that people can use to kind of change their environment and make it more conducive to change their habits for the better.

Baker: I really love this metaphor from the book Switch, and that’s what I come back to several days of the course here in the first week, I center the whole thing around it, because for me, I always started off making it a logic battle.  I was like, “I’m going to lose weight, so here’s what I’m going to do.  I’m going to exercise every day, I’m going to never eat fast food again.  I’m going to never have junk food.  This is going to be exactly what I eat – I’m only going to eat these specific things.”  And I make it very, what I would call logical.  “If I do these, I get this result.”  And that’s how many of us start, it’s where I always used to start, and I realized that’s why I always fail.

So as they say in the book, I tried to force the elephant with all of my energy.  And you can fight that elephant, you can guide that elephant through the jungle, in their metaphor, but you can only do it for so long by force.  Eventually you tire and you wear out and you get exhausted and you fail.  And it manifests itself as laziness.  I think they even said that in the book as well.  People appear lazy when sometimes they’re just so exhausted because they’re trying to fight their logical brain and take full responsibility for change.

So your question to me was, what were some tips and breakthroughs for me, and that was realizing how big of a role the elephant played in the situation.  And again, the elephant is the emotional side of your mind.  How big of a role motivation in people and like a reward system, you know what I mean?  It’s celebrating and being friggin’ happy.  How much does all of that play in to key the habit change.

So, for example, I’m certainly not a fitness expert, but I’ve been able to lose some weight recently, and the entire breakthrough has come by allowing myself to follow a strict plan, because that’s what my logical brain needs.  But I also allow myself to the time for emotional reasons.  I got to the bottom of really why I wanted to change.

One of the reasons I really want to change is because I’m going to be doing more speaking, and I don’t want to look like a fat slob when I’m on stage speaking, right?  I want to change habits so that I can be healthier and live longer, right?  But that’s not the real reason.  That’s not the real motivation behind me.  So as I started to dig deeper, I realized the real reasons I was motivated… I’m not motivated to pick up chicks, because I’ve already picked up the one chick, I’m married, right?  I want to look good for my wife, but I’m not in that stage where I just have to stare at myself in the mirror, that’s not going to motivate me either at this point in my life.

But looking and feeling healthy and appearing good on stage, being able to talk in front of people without feeling embarrassed, that does affect me right now.  And I’ve realized this, and I’ve played into it, and I started celebrating small wins. I have my cheat days once a week, which is part of the actual diet plan that I use.  Like I allow myself the ability to cheat without allowing myself to feel guilty about it.  And there’s still a structure for that, but some of these breakthroughs haven’t really helped me.  It all comes back to playing into the emotional side of my brain.

And the other side of that is environment.  So I’ve removed all the junk food… If I have cheat day, if there’s any food left from a cheat day, I throw it away or I get rid of it, or I give it to someone and say, “Make sure you eat this ice cream.” It’s not going to be in the house the other six days of the week, and that’s environment.  All the junk food’s out.  You don’t have leftover pizza in the refrigerator.  I either eat it or give it away or give it to somebody but just get it out of the house and don’t order extra food so you don’t have that left over.

With your finances it’s the exact same way.  For me, I needed to stop gambling.  That was a big thing for me, so I just quit, I ended up going cold turkey, and one of the reasons for that is because the financial impact it was having, I removed negative people from that part of my life.

My father, for example, is a great inspiration on my life.  He’s very, very supportive, but he wasn’t someone that was going to necessarily celebrate me paying off a credit card.  That’s not his style, that’s okay.  So if I called him up and said, “Dad, I paid off a credit card.” He just wasn’t going to be, like, “Oh, okay, that’s neat,” he wasn’t on board.  So I’ve got people in my life that I filled them in on it that were going to be like, “That’s awesome, keep going!” I plugged into the financial blogs, I plugged into the financial community, and my wife and I both get excited and we celebrate this stuff.  All of that environment is emotional and it’s helping us change, and that was a really vital thing for me when we were first going through it.

Download the entire interview here.

ABOUT YOU VS. DEBT

You Vs. Debt is a six-week interactive course on getting out of debt that focuses on the emotional side of debt and finances.

Together with other students, you’ll watch briefly daily videos, complete exercises, and discuss lessons that will prepare and motivate you to execute financial changes in your life with the end goal of getting rid of your debt once and for all.

Because Baker is a friend and, perhaps more importantly, because I know he gives 125% to everything he does, when I learned he was launching this new course, I knew immediately I wanted to help him spread the word. (FYI, in five years of blogging, I’ve never plugged another blogger’s book, course, or other product…)

Is You Vs. Debt right for everybody? Of course not, and I’m not recommending anybody sign up without reflecting on whether this can help you. But if you’ve been trying and trying to cut back on spending or get up the motivation to earn more money, but keep failing because you can’t seem to make the changes stick, this course will provide the tricks you need to permanently make positive change.

» » » Learn more about You Vs Debt here. « « «

(But do hurry, enrollment for this class ends on Thursday!)

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Not someday. Not tomorrow. Right. Freaking. Now.

Get your boots on.

Warning: This is a big post. (Like, over 2,500 words big.) I tried to make it as skimmable as possible, but you can jump to sections like the three prerequisites to permanently ridding yourself of debt, how to calculate your Debt Ratio, or the debt toolbox which shows you how to use things like balance transfers and social lending to get out of debt faster.

I’VE BEEN THERE

If you’re new to Money Under 30, let me catch you up on my story.

I was a debt junkie for almost ten years. I ran up credit card after credit card living like my salary was about four times its actual size. Stupid things I bought on credit included flying lessons, weekends in Vegas, and a spanking new pickup truck. Hey, I never said I wasn’t having fun. (Remember, I’m on the other side of 25 now, so I started college pre-recession… during the dot-com boom. Back then, I actually thought I could graduate with a sociology major into $75k a year job—because I knew people who did!!!)

Yeah, right.

We all know that didn’t’ happen, and soon enough, the debt caught up with me. Around the ages of 25-26, I maxed out with debt of around $80k. All of a sudden, I couldn’t keep borrowing my way out of trouble anymore. At the same time, I realized that the stress of barely making my monthly payments and owing twice what I earned in a year was taking its toll. I was, to quote my bio, “maxed out, stressed out, and fed up.”

So I decided to change.

I’m a smart guy. And I don’t consider myself afraid of a little hard work. So several years ago, I resolved to:

1. Get out of consumer debt on my own.
2. Go a step further and achieve a kind of financial stability that most people never do.
3. Blog about it in a way that makes it accessible to others.

(And here we are.)

Today, I have no consumer debt. By choice, I’m not debt-free. For example, I’ve chosen not to pay off early two student loans totaling about $4k because they’re at interest rates of three and five percent. (To learn why, read my recent post on when paying off student loans early makes sense and when it doesn’t.) I also recently bought a home with a 20-year fixed rate mortgage. In these cases, I’m using debt conservatively and consciously to advance my financial goals. But all the nasty stuff—credit cards, personal loans, and an auto loan—is long gone.

YOU CAN DO THIS, TOO

I blog because I want to help you get a hold of your finances and get them to a place where you can stop worrying about money and get on with life.

Contrary to what hundreds of marketers and self-described personal finance “experts” will try to sell you—there is no secret to getting out of debt. No right way. No silver bullet.

That said, I think it IS fair to say there are a few requirements to permanently ridding yourself of consumer debt.

1. You must confront your debt.
2. You must permanently change the behaviors that got you into debt.
3. You must make enough money to repay the debt.

Throughout all the years I carried this debt around with me, I never wanted to be in debt. But it wasn’t until I met the three criteria above that I was able to do something about it. First, I had to stop living in denial, telling myself my debt “wasn’t that bad”. I needed a reality check and to stare down exactly how much debt I had and what it would take to get out.

Second, I needed to figure out why I was in debt and STOP DOING THOSE THINGS. I had to tone down my lifestyle. By a lot.

Finally, I had to find a way to earn enough to repay the debt. So I got a second job, worked on a series of job changes that increased my income, and started this blog which—in time—created yet another income stream.

Now, let’s break this down and see how you can apply these three requirements to your debt.

Confront Your Debt

I’ve written before about being afraid of your finances, because I think this actually happens. There was a time in my early twenties, when my debts were steadily mounting, that I knew I was in trouble, but I was too scared to actually tally up how much debt I was in. I paid minimum payments, and forgot about them until the following month. If this is you—or if you simply need a refresher as to your current (negative) net worth. Let’s take a look. Tally up all your debts. Credit cards. Student loans. Auto loans.

And anything else. For now, we’ll leave any mortgages out of it.

For repayment purposes, you can hold off on paying off early and student loans with really good interest rates (say, sub-seven percent). But for benchmark purposes, include those, too.

That’s your number.

Although your absolute total debt is important, it’s not as important as how that debt compares to your annual income. It’s time to calculate…

YOUR DEBT RATIO

A debt-to-income ratio is a commonly used figure, but it’s often calculated different ways. For example, when you apply for a mortgage, the banks calculate your DTI as the percentage of monthly debt payments of your MONTHLY income.

Last year, I reviewed the book Your Money Ratios by CBS MoneyWatch columnist Charles Farrell. I liked Farrell’s idea of simplifying financial planning by applying ratios to personal finance (something that financial professionals do all the time, anyway).

Although not one of Farrell’s ratios, I like to calculate a Debt Ratio as the amount of total debt (excluding mortgages) as a percentage of gross annual income.

• Example 1: You earn $50,000 a year and have $25,000 in debt. Your Debt Ratio = 0.5.
• Example 2: You earn $100,000 and have $250,000 in debt. Your Debt Ratio = 2.5.

This gives you a benchmark for how indebted you are (and what it will take to escape). Here’s how this breaks down.

• 0.0 – .19 (Not Bad)
• 0.20 – .34 (Fair)
• 0.35 – 1.0 (Poor)
• 1.0 – 2.0 (Warning)
• 2.0 or more (Oh, hell)

In case you’re wondering, my debt was way above 2.0 for a while.

So whatever your debt ratio, don’t despair. If yours is way up there, it just means you have some work to do. If your debt ratio is in the fair range, don’t brush it off…that only means you should be able to pay it off—on your own—more easily (and quickly).

Change the Behaviors that Got You Into Debt

People get into debt for different reasons. School, job loss, medical bills, or, if you’re like me, STUPIDITY. But why you got into debt doesn’t really matter. What matters is that you don’t let it happen again! (If you can control it. You can’t, obviously, control getting sick, although you can make sure you have health insurance.)

• If you took out $50k in student loans for a bachelor’s degree, don’t take out $100k more for a PhD.
• If you fell into a pile of debt after losing your job, resolve (once you get out of debt), to work on an emergency fund should this happen again.
• If you, like me, spent years living a life you couldn’t afford, then figure out what the life you can afford looks like, and get there.

This last step is easier said than done. In fact, that goal alone is responsible for about a third of every personal finance article every written. “Live within your means,” “spend less than you earn,” etc., etc.  Why has so much written about such a simple, simple concept?

Because once we get accustomed to living a certain way, it’s incredibly difficult to change. You know, how do you start living on Ramen after two years of The Capital Grille?

That’s where this comes in:

Earn Enough to Get Out of Debt

Getting out of debt (and doing it on your own), not only requires you to live within your means, but to live below it. Put another way: you need to go from a situation in which you’re spending more than you earn into one where you’re earning more than you spend. And the faster you want to become debt free, the more you have to earn above and beyond what you spend.

Personally, I knew I was never going to get out of debt just by cutting spending unless, perhaps, I lived with my parents until 35. (No offense, Mom and Dad, but no thanks.) I simply didn’t earn enough money. I had to earn more. So I did several things: I got a second job (at Starbucks, of all places), I looked for higher paying day jobs and moved (a couple of times), and I started this blog. Between the second job, a career change, and starting blogging, I added $15,000 to my annual income. And in about four years, I went from earning just over $30,000 to making over six figures.

I do not say this to brag or to claim that I’m anything special. I say it only to make a point. If you put your mind to it, you CAN get out of debt. If you put your mind to it, you CAN increase your income. If you put your mind to it, you CAN get a better job. If you put your mind to it, you CAN start a part-time business.

Not everybody has to earn more money to get out of debt, but it makes it a lot easier.

IDEAS FOR EARNING MORE MONEY

There are literally endless ways to earn extra money, but all could fall into these three categories.

• Sell stuff.
• Work harder.
• Work smarter.

Selling stuff. If you have STUFF, then you can make money. Find stuff you don’t use anymore and hit up eBay or Craiglist or a yard sale. If you want a kick in the pants to do this, buy a copy of Man vs. Debt’s Sell Your Crap course (I’m not an affiliate, I just love Baker’s stuff). The good thing about selling stuff is you can get cash fast. The bad news is it’s not sustainable; sooner or later, you’re going to run out of crap to sell.

Working harder. Get a second job or work overtime, if available. I’ll be blunt, second jobs are no fun. Think of how tired/stressed/soulless you feel after your 9-5 already, now imagine getting in your car, battling rush hour traffic, and putting in another four hours from 9-10. Then you get home around 11, just in time to watch the Daily Show and pass out. Putting in extra hours earns extra dollars, but it can suck the life out of you. If this is the route you want to go, however, there are options: food service, babysitting, mall stores, delivery routes, security guarding, tutoring, teaching prep classes, bartending, cab driving, etc.

Working smarter. This is my personal favorite way to increase your income, and you’ll see why. Working smarter is about getting promoted at work. Or, if your job won’t promote you: finding a higher-paying job. Or, if you can’t find a higher-paying job: working for yourself. If you make the decision to earn more money by working smarter, you just have to DO.

Note: I can’t take the space here to list a million business ideas, but I have always found inspiration in the Inc. 500, a list of the fastest-growing companies in America. (My first college internship was with Inc.—my job was to interview the CEOs of these companies to about the secrets of their success. It was one of the best experiences of my life.) I still think of that list as “500 ways to make money”.

The Get Out of Debt Toolbox

Motivation is half the battle, but if there are tools available to help you get out of debt yourself, why not take them?

For anybody who wants to get out of debt on your own in 2011, there’s some very good news. It’s not 2010 (or 2009, or 2008). The credit crunch is over. That means, unless you totally scorched your credit score, you may be able to use the credit system to your advantage to help you escape it.

BALANCE TRANSFERS

The 0% credit card balance transfer if back, and in a big way.

For newbs: As a way of attracting new customers, credit card companies will let you transfer a balance (in other words, transfer debt) from another credit card to their credit card at a low interest rate for a said number of months. Theoretically, if you transfer a $2,000 balance at 15% APR to a 0% for 12 months balance transfer card, you could save up to $300 in interest.

There are, of course, pitfalls to this approach. In fact, there are a lot of them. For example:

• There is often a fee to transfer a balance, eating into savings.
• Transferring a balance doesn’t solve your problem, it just moves it.
• You need good credit to get approved for new credit card. (Probably a score 0f 700 or more. You can check your score to get a sense if you’ll qualify.)
• More credit means more temptation to spend.

Those risks aside, balance transfers can save you money. For example, Discover is offering 0% for 18 months (with a 5% fee). Also, Citi also has some 0% APR offers on balances transfers for up to 21 months. Got a balance at a crazy rate? If you can get this offer and transfer it without a fee, then pay it off in a year, you can save yourself hundreds.

Consider balance transfers carefully, but don’t be afraid to use them if they can help you. In general, look for offers with no fees, 0% APRs, and periods of 12 months or longer. (See current offers here on my recommended credit cards page).

PEER TO PEER LENDING

Eventually, I got to a point where a) I had too much debt to get new credit cards and b) balance transfers obviously didn’t work for me because I would transfer the balance and just spend again on the old credit card. Sound familiar? If so, you may find help in peer-to-peer lending.

In 2006, I consolidated credit card debt with a loan from Prosper. Huh?

Peer-to-peer lending networks like Prosper and LendingClub allow individual people to make unsecured loans to other regular people. No bank involved. You’ll still need good credit to get a personal loan, but you may be able to get a lower interest rate than credit cards in the form of a fixed payment loan (for either 3 or 5 years). That way, you can’t be tempted to make minimum payments.

If you think consolidation loan could help, learn more about Prosper or LendingClub. (I’m now an investor with LendingClub and can vouch that both are legit and AWESOME. It’s the future of consumer finance.)

CREDIT COUNSELING AND DEBT MANAGEMENT

Part of taking the steps necessary to get out of debt is admitting when you need help. Although you can save money by getting out of debt on your own, sometimes it just doesn’t work. That’s where credit counseling and/or debt management may be of help. Just PROCEED CAREFULLY. Although the government has cracked down a bit in recent years, there are a lot of companies out there that advertise these kinds of services that will only make matters worse. AVOID debt settlement scams or any service that promises to reduce the total amount you owe. AVOID any service that charges big upfront fees.

The National Foundation for Credit Counseling is a non-profit organization of reputable credit counselors that can direct you to somebody in your area that can help you make a plan to get out of debt. They may charge a fee for their time or on a monthly basis.

You may also want to research (either through your counselor or on your own) entering a debt management plan. Under such a plan, a third-party company negotiates interest rates, payment amounts, and fees with your creditors. You make one monthly payment to the third-party company and they pay all your creditors. Read 10 things to know about debt management companies to help you decide if this is a route you want to go. If you decide it is, I recommend CareOne Debt Relief Services®. (I actually used them towards the end of my road out of debt to reduce my interest rates and help force me NOT to use the credit cards I was working so hard to payoff. Full disclosure: I’m also a compensated affiliate of CareOne.)

YOUR NEXT STEP

Are you still reading this? Amazing. Thank you! The bottom line is, none of all that I’ve just written is worth anything unless YOU take action. And although getting out of debt is a long process, you CAN start today. And that’s what I ask you to do:

Within 24 HOURS, I want you to DO SOMETHING—ANYTHING—towards getting out of debt. If you do, please SHARE it in a comment.

Here are just a few ideas of things you could do, but I urge you to get creative!

• Cut up a credit card.
• Post something you own for sale.
• Write down a goal to earn more money.
• Submit an application to a new (higher paying or additional) job.
• Transfer a high-interest rate balance.
• Confront your debt (write down your total debt and debt ratio).
• Reexamine your budget.
• Make an extra debt payment.
• Look into credit counseling.

How are you going to get started?

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Thanks to …-Wink-… for the awesome photo.

If you’re starting to get behind on your mortgage or have already received a notice of default (NOD) –you need to take action. You can:

• Hustle – Come up with the cash to bring your mortgage current.
• Get a Loan Modification — Ask your lender to change the terms of your loan.
• Walk Away — Let your bank foreclose on the home.
• Attempt a Short Sale — Sell your home for less than you owe.

What Is a Short Sale?

A short sale occurs when proceeds from the sale of a home are less than what the seller owes on the property. Before pursuing a short sale, sellers (often with the help of a real estate agent) must negotiate with their lender(s) and get the lender(s) to agree to the sale of the property at fair market value even if that amount is less than what the homeowner owes.

Short sales prevent foreclosure, but are obviously pretty ugly themselves. They’ll still hurt your credit, and with a short sale, you run the risk of getting a tax bill for the difference between what you owe and what your house is sold for, depending on your state’s law. You should discuss this with your real estate professional or accountant.

With that in mind, why would anyone actually want to short sell their property? Often, a short sale is the lesser of several evils.

Considering the Alternatives

Before making the decision to short sell your property, it’s important to consider all of your options. If you are behind in your payments and expect future payments to be a struggle, you could let your home go into foreclosure by discontinuing all payments (walk away). Foreclosures can stay on your credit report up to ten years. Although a short sale will still impact your credit for many years, future prospective lenders and employers may look more favorably on a short sale than a foreclosure because you chose to help ameliorate the situation rather than just walk away.

Another option is a loan modification. Loan modifications may allow you to stay in your home, but may end up being an expensive and/or temporary fix. Loan mods may alter the loan type (for example, from an adjustable to fixed rate or vice versa) or extend the term of the loan (for example, from 30 to 40 years). Depending on the mod, you may get a lower monthly payment but end up paying more interest in the long-run or your lender may forgive your arrears but not lower your monthly payment, in which case you may be at risk to just fall behind again.

As an aside about loan modifications, NEVER pay a third-party to negotiate a loan modification for you. Most of these services are scams, especially if they require an up-front fee or ask that you make your mortgage payment to them instead of your lender. If you want to pursue a loan modification, either contact your lender directly or find a HUD Certified Housing Counselor in your area. These counselors are certified to provide free or low-cost advice on modifications and foreclosure avoidance.

Preparing for a Short Sale

To be considered for a short sale, you’ll need to submit a letter of hardship to your lender, explaining the challenges which have caused your financial difficulty. Truthfully explain loss of employment, family death, divorce, or medical expenses. Lenders will ask about your income and assets, such as stocks, bonds, savings accounts, money market accounts, or other real estate. Finally, many lenders will only consider approval if you are a month or more behind on your payments.

Financial institutions often require that there is a buyer in line ready to purchase the property. This is where the real estate professional can help. If the reason you can’t fully pay off the lender through the sale of your home is due to a drop in real estate values in your market, ask your real estate agent to prepare a comparative market analysis to give the lender data about recent sales of similar homes.

The process of selling your home short of what is owed to the bank can take up to nine months or more, depending on how quickly your real estate professional can find a seller and how well the bank communicates. You’ll begin by providing the necessary documents to the real estate professional such as W2s, pay stubs, mortgage information, bank statements, and the hardship letter. Then the agent will contact the lender and list the home for sale on the Multiple Listing Services (MLS). It is then your responsibility to keep your real estate agent informed of any changes in your financial status, and keep the house tidy, ready to be shown to potential buyers.

If you’re behind on your mortgage and considering a short, talk to a HUD housing counselor or a real estate attorney. She will help you analyze your financial future so you can find the solution which does the least damage. She can also refer you to a real estate agent who can put your house on the market to start the short sale process. As a final reminder, there are numerous scams dealing with loan medications and short sales out there, so be alert. You should never have to pay an up-front fee for a loan modification or to make a mortgage payment to anyone other than the mortgage company.

Sure, balance transfers can be a fast way to curb how much you’re paying in interest, but let me tell you from personal experience: proceed with caution.

For the financially-savvy, balance transfer offers are a way to borrow money cheaply. For others struggling with credit card debt, 0% balance transfer offers can be wolves in sheep’s clothing; they provide temporary relief from crushing interest rates but often, balance transfers ultimately prolong—or exacerbate—the problem. (In the latter case, imagine you take a 0% balance transfer offer with good intentions to pay down the debt within a year and save hundreds in interest. But transferring the balance “clears room” on another credit card, which you can end up using again, creating more debt).

To Transfer or Not to Transfer

Before you transfer a balance, ask yourself: Is this really a good deal for me?

Keep in mind that balance transfer fees have gone up. The industry standard was once 3%, now many cards charge 4% or 5% of the balance transferred. Gone are the days where you could use cash from a 0% balance transfer offer to stash in a high yield savings account at 5% APY.

An example: If you’re repaying a debt at a 15% APR or higher over six months or more, a 0% balance transfer with a 5% fee starts to make sense. (The actual break even-point depends on your actual APR and your monthly payments, of course.) If, however, you could repay the debt in less than six months, you might not actually save anything with the 0% balance transfer. You would, however, be tempted to let the debt hang around longer because you’re not paying interest…for now. You never know when you might face an emergency or lose your income and be stuck with an unpaid debt and an expiring introductory interest rate.

One final consideration is that just because cards advertise great balance transfer rates, doesn’t mean you’ll qualify. Card companies reserve the best rates and longest terms for people with A+ credit and typically don’t tell you what balance transfer terms you qualify for until you’ve already applied. In an attempt to differentiate itself by combating this, Discover’s current offer promises a full 12 months at 0% on balance transfers for all approved applications.

Looking for a balance transfer card? Here are some of the latest offers (updated Jan 3, 2012):

• Discover More Card – No Balance Transfer Fee – It’s hard to find a “no balance transfer fee” offer so this is a good deal while it lasts.
• The Discover More Card is offering 0% for 18 months with a 4% fee.
• The Chase Freedom Card is offering up to 0% on purchases for six months and 0% on balance transfers for up to 12 months. (5% balance transfer fee, $10 minimum.)
• The Citi® Diamond Preferred® Card is offering 0% on purchases and balance transfers for up to 18 months. (3% balance transfer fee, $5 minimum.)

You can also browse my recommended credit cards or click here to search for and compare more balance transfer credit cards.

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Seems a bit overboard, right? Of course it is. Even if you’re debt-free, we’re not going to recommend you blow all your cash on an expensive car or get a high interest rate auto loan (not to mention go without car insurance)!

Sometimes, however, it’s hard to avoid splurging on material things that catch our eye. Those tricky advertisers have tons of smooth one-liners up their sleeve and they know exactly how to get us silly little consumers drooling over their newest product. Plus, we work hard, right? We deserve to have a little fun with all that money we earn, right?

Yes, it’s important to have fun with our money, but when is our spending just right and when is it too much?

I know so many people who want to change their financial situation. They’ll say they’re in a financial rut and they can’t break free. They’re drowning in debt or can’t make ends meet. Then they’ll go out and spend like I suggested in the first paragraph and end up right back at square one. Or if they don’t have a frivolous spending problem, they just don’t always make the best decisions with their money.

I used to follow a similar pattern. I would spend and spend and not even know how much money I had in the bank. Then I would tell myself I would not spend any more money until I paid off my debt. Of course, that only worked until those crafty advertisers started whispering sweet nothings in my ear about a great sale going on at my favorite store. Then, the spending cycle would start all over again.

However, when you fall into a vicious cycle of binging on spending and then claiming the next day that you won’t shop for a year, you’re only setting yourself up for the worst. This solution is imbalanced which is why it never works.

The only way to defeat the powerful spending cycle is to find your own financial balance.

Out of the hundreds of millions of people in the country, not one of us has the same financial situation. (That’s why it’s called personal finance!) I can write about tips on how to save money or be frugal all day long, but none of them will serve their purpose until you start to decide what works best for you.

While a fancy dinner on a Friday night may fall into some people’s budget just perfectly, it could easily throw another person’s budget completely out of whack.

Until I found my financial balance, my money situation was out of control. I was trying to meet the needs of my friends and family while trying to fit in with the rest of my peers. I literally had no idea how much money I was spending on social outings, insurance, clothing, and food each month. Two simple solutions helped bring my finances back in balance: tracking my spending and learning to say “No” when I knew I couldn’t afford something. Finding my balance immediately set me on the right path to becoming debt-free. While these two things brought me financial stability, you might need completely different solutions to find your perfect balance.

Try asking yourself these questions to help find your balance:

• Is your budget realistic for you and/or your family?
• When you spend, do you know that it will cause you budgeting problems?
• If so, what are your biggest spending problem areas?
• What causes you to spend in these areas?
• How can you avoid these budget pitfalls in the future?
• Overall, what are your biggest financial goals right now? Saving, paying off debt, donating more, etc? (Remember that everyone’s financial goals are personal and don’t have to be the same goals as your best friend or your significant other.)
• Which financial areas are preventing you from reaching your goals?
• How can I reach my goals, but still enjoy life in the process?

Everyone’s perfect balance is different than the next person. Next time you feel that you don’t have control of your finances, try to step back and take a look at the big picture. Ask yourself the questions above to help you find your financial balance and you could be well on your way to meeting all of your financial goals. Are you leading a balanced financial life? What strategies do you use to maintain your balance?

Assume you are the proud owners of a new home and you need to finance a total of $250,000 over a 30 year fixed mortgage rate of five percent. Do you know what your monthly payment will be? Do you know how much money you are going to pay over the course of the full 30 years? Sadly, the numbers are probably a lot bigger than you think, but I’m going to show you just how to calculate this information on your own.

The formula for figuring out your own monthly payment on a principal loan is as follows:

M = P x J / 1 – (1 + J) ^ -N

To solve this formula, let’s first define all of the variables:

• M = Your monthly loan payment
• P = The principal amount of the loan. In this case, $250,000
• I = The annual interest rate. In this case, 5%
• L = Length in years of the loan. In this case, 30
• J = Interest rate in decimal form. (I / (12×100), in this case, 0.004166666667
• N = Number of months the loan is good for (L x 12). In this case, 360

Now that we have everything defined, a few simple computations and we will figure out just how much our monthly payment will be. Make sure you follow your math rules, always taking care of things in parenthesis first, then exponents, multiplication, division, addition and finally subtraction.

M = 250,000 x 0.00416666666667 / 1 – (1.00416666666667) ^ (-360)

Computing the number raised to the power of (-360) then subtracting it from 1, our formula is simplified and looks as follows:

M = 250,000 x 0.00416666666667 / 0.776173399

The final step is dividing the two numbers and multiplying the result by the principal balance of $250,000. Our results show a monthly payment of $1,342.05, which is exactly what any mortgage calculator will show if you use the above criteria. When you multiply this monthly payment over the course of 360 months, you find out that a total of $483,138 will be paid on a $250,000 loan. YIKES!

At anytime during your mortgage or loan, you usually have the option of paying more than you owe for the month, thereby reducing your principal. Paying off a little extra early on can save you thousands over the course of your entire loan and figuring out your new monthly payment is just as simple. Just change the principal amount and the number of months remaining on the loan to figure out what your new monthly payment will be.

And that’s all there is to calculating how much your monthly payment will be on a fixed interest rate loan. It’s never a pretty number in the end, but of course you can always make extra payments to reduce how long you take to repay the loan (and how much interest you pay).

About the Author: Michael is a contributing editor of the Dough Roller, a personal finance and investing blog, and Credit Card Offers IQ, a credit card review site.

I came out of college with no personal finance experience and had no idea how to control my money. I quickly found myself in a pile of student loan, credit card, and car loan debt. It didn’t take me long to realize I hated that awful feeling in my stomach and wanted to get rid of it. I knew that I needed to do something about my debt, and I wanted quick results.

Here is how I got out of debt, using a little “tough love”. If you’re struggling with debt, perhaps it can help you, too.

If It’s Not Necessary, It’s Not Allowed

Contrary to what I used to believe, a night out on the town or designer boots do not qualify as necessary expenses. When you’re in debt, you must eliminate all frivolous and unnecessary expenses like these (even if the boots are on sale and just perfect) in order to meet your goal of debt-freedom.

Trim down all your bills to only your basic needs. Cancel your cable bill. Trim your cell phone bill to the lowest amount of minutes possible (say bye-bye to internet access or texting on your phone).

Call your car insurance company and raise your deductible and you’ll see a huge drop in your monthly premium (after all, how often do you make an insurance claim?). You can even check to see if you’re carrying extra car insurance you may not need.

For me, it was hard to cut out my dining out and entertainment expenses. These are expenses that 20-somethings thrive on and eliminating a social life is not an option for most people. The best solution is to still go out with your friends, just order a water or soda or eat beforehand. This may be hard at first, but over time you’ll most likely realize that getting out of debt is more important than one overpriced dinner or drink.

Free is More Fun

Cutting back on spending can be a huge lifestyle shock in the beginning, however, here are some ideas that will help you have fun for free when you’re knocking out that debt.

While you may be accustomed to spending your Friday nights at popular bars or restaurants, now is the time to invite friends over for movies, game night, or cocktail hour at home. Afraid you’ll miss all the shows you used to watch on cable? Most of those shows are now easily accessible online at websites like Hulu or even network websites like MTV or the CW. Plus, your local library probably offers most popular television shows in box sets that are free to check out. Speaking of the library, don’t forget about all the books, movies, CDs, and magazines they have to offer—for free!

Want more ideas on how you can have fun for free? Check out Cities On The Cheap, which has websites for over 35 U.S. cities and two Canadian cities.

Get creative when thinking of your weekend activities! The free (and fun) possibilities are endless! After all, aren’t the twenties supposed to be the best years of your life? Right now is the time to get debt-free and have fun while doing it!

Find the Hidden “Unnecessary Necessary” Expenses

Grocery shopping can be a great example of those “unnecessary necessary” expenses. Do you ever notice that there is food left over in the pantry at the end of the week, but you still feel like you need to make a trip to the grocery store? If this sounds like you, it’s time to start making a weekly meal plan.

Write down every meal and every ingredient you’ll need for every meal. The point of this list is to cut out all the food that we thought was actually necessary, but really wasn’t. Instead of haphazardly buying ingredients for 10 different meals, consolidate the ingredients to make only the exact number of meals you’ll need for that week only. You’ll know you’ve succeeded when your cabinets are bone dry come Sunday morning!

Use this technique in other areas of your life (clothing, gas for your car, household items, etc.) to cut out those hidden excess expenses and trim your budget even further!

Keep Your Eyes on the Prize

As I mentioned earlier, when you implement these rules in your life, it can feel like a huge lifestyle change. It might even feel like a huge burden. Be sure to help yourself stay motivated and focused by keeping a calendar or timeline of your debt-payoff schedule close at hand!

Small rewards are definitely encouraged when you’re using such a strict debt reduction technique. The key to this technique is trimming down 99.99% of your unnecessary spending.

If, however, you’re really keeping your spending on a tight leash and want to enjoy a dinner out or new shirt every couple months while still keeping your eyes on the prize, by all means go for it. Tough love debt reduction is not meant to be a torture device, rather a tool that will give you fast results and teach you the fundamentals of living on less.

Put these tough but effective techniques to use in your life and your debt will soon be just a distant memory. Then you can go on and enjoy the rest of your twenties without worry; I have heard they’re supposed to be the best years of your life!

One man was dealing with estranged spouses (yes, plural), a failed business, and hundreds of thousands in debt. It was no surprise he was considering bankruptcy. From there, however, callers’ reasons for wanting to file bankruptcy grew far less convincing. One caller even wanted to know if her 24-year old son should file bankruptcy over a $15,000 credit card debt.

Bankruptcy in this country has its place. Ideally, bankruptcy serves debtors who are in such a hole that there is truly no other way out. Unfortunately, however, many Americans see bankruptcy as the “easy way out” of debt—just like we snatch up diet pills and a lotto tickets.

If you’re struggling with a frightening amount of debt (or know somebody who is), here’s a quick reminder of why bankruptcy should still be avoided and only used as a true last resort.

What Bankruptcy Does

Here’s the 60-second primer: Bankruptcy is designed to protect the truly insolvent from unaffordable debt. There are two kinds of individual bankruptcy: Chapter 7 and Chapter 13.

• Under Chapter 7 bankruptcy, filers must liquidate personal assets to pay some debts, but many other debts may be discharged. Debtors must meet certain income requirements to file Chapter 7 bankruptcy.
• Chapter 13 bankruptcy odes not eliminate debt; it establishes a court-supervised repayment plan over three to five years.

Although bankruptcy can help debtors eliminate or repay many unsecured debts like credit card and medical bills, bankruptcy does not eliminate many debts including alimony, student loans, criminal judgments, and tax debts.

Why Avoid Bankruptcy

Ruined Credit. Unsurprisingly, bankruptcy ruins your credit (if you had any left before filing). Bankruptcy stays on your credit report for at least seven and up to 10 years. That does not, however, mean that once that time has passed, you have a clean slate. Many financial applications and background checks ask if you have ever filed bankruptcy. Not in the last 10 years. Ever. Bankruptcy will follow you for life.

Expensive Borrowing. Most unsecured credit cards will flat out reject applicants with a recent bankruptcy. You may be able to arrange for a mortgage or an auto loan in time, but you may need to put up to 50 percent down and pay ridiculously high interest rates.

Filing is Tricky and Costly. Legislation enacted in 2005 makes it harder to file bankruptcy. Filers must go through credit counseling at their expense six months before filing for bankruptcy and must take a financial education class afterward. Finally, even though bankruptcy is designed for broke people, it is far from free. You can expect to pay, at the very least, $1,000 in filing fees and attorney fees.

Alternatives to Bankruptcy

The best way out of debt will always be to man up and face your debt head-on. That means making a debt repayment plan and paying up—whatever it takes.

If you need help, there are legitimate organizations that can help, like the National Foundation for Credit Counseling (800-388-2227, www.nfcc.org).

• Need Help? Learn How to Get a Free Debt Consultation

Ads for commercial debt management programs and debt settlement companies abound, but be careful: Some debt management programs can help; debt settlement offers usually don’t.

If you’ve made significant efforts on your own to repay your debts and have already tried getting help from one of the above sources—especially if you owe more than you earn in a year—bankruptcy may be an option. Just do your homework and ensure you have exhausted other options before you proceed.

Finally, if you do go forward, find and hire an attorney you trust.

That’s because the CARD Act takes effect this winter and will restrict credit card companies’ ability to raise interest rates on existing customers. If you thought credit card companies were committing usury in the past with APRs of eighteen, or twenty percent; you ain’t seen nothing yet. Cardholders are seeing their rates go as high as 29.9 percent; there’s even a story of man who received a credit card offer at 79.9 percent APR!

How do you know if your card is raising your interest rate? What can you do about it?

How Credit Cards Raise APRs

In general, your credit card company must notify you of any changes to your account, including interest rate increases, by mail (or electronically if you have consented to receive legal disclosures online). Unless you pay late. Most cards’ terms and conditions include a clause that allows them to raise your interest rate if you pay late or go over your credit limit; no notification required.

Manage your cards well? You’re not immune to rate hikes.

My wife just received a notification from Citi that her interest rate will jump to 23.9 percent in December. That’s on a card with a $15,000 credit limit that does not have a balance and has always been paid in full. (We use the card for joint expenses each month and pay it in full).

She received a letter yesterday detailing the change. Unlike other rate increases I have seen, however, this notice had an interesting clause. If my wife were to transfer a balance of $3,000 or more to the card (plus a fee), Citi would actually lower her rate to 9.9 percent on the balance transfer and all future purchases until 2011. Obviously, Citi is just trying to make some money off this account. Since we always pay the balance in full and the card has no annual fee, they never get a dime from us in interest.

Just be sure to watch the mail.

A lot of these credit card rate increase notices look like junk mail. But if you miss them, you may miss your opportunity to opt-out of the rate increases.

How to Opt-Out of Rate Increases

When your credit card company raises your interest rate arbitrarily (i.e., not because you paid late), they must give you the opportunity to opt-out. Usually, you must contact the card’s customer service to opt-out. If you opt-out:

• You can pay off the existing card balance at your current (lower) interest rate.
• When the debt is paid off, or when the card expires, the credit card will be closed.

If you don’t opt-out by the specified deadline, your rate will go up and you won’t be able to do anything about it after the fact. So if you’re carrying a balance and your credit card company notifies you of an extreme rate increase, you should probably opt-out (unless you can pay off the balance in-full immediately). This is the time to forget about whatever effect closing your credit card has on your credit and just get far, far away from this nasty interest rate.

What to Do Next

If you’re not carrying a balance on the card that raised your interest rate, there’s little point to opting-out. As long as you don’t take on debt on that card, who cares about the APR? You might, however, be so outraged with the card company that you want to stop doing business with them. Or, you might want to preserve a lower APR “just in case” you need to revolve a balance on the card in the future.

Try negotiating.

In the past, customers with excellent payment histories could often be successful just calling up their credit card company and saying “Hey, I can get a 13 percent APR with Card ABC or Card XYZ, why should I stay with your card at 20 percent? What can you do for me?”

This strategy is certainly still worth a shot, although you can expect to have a harder time getting concessions from card companies. For one, they know that it’s harder for customers to switch to a new card (due to tightened credit requirements). Second, the card companies need the money. (Not that I expect you to have a lot of sympathy). But with sky-high default rates and the new laws limiting sneaky fees and interest rates that used to make credit card companies lots of cash, they’re trying to figure out how to make money on a totally new playing field. For now, that means charging even their best customers ridiculous interest rates.

Or, get a new card.

If you have really good credit and little or no credit card debt, you’re in luck, because you can probably apply and get approved for a new credit card at a much lower APR than on existing cards you have. (Most cards are offering new customers APRs ranging from 12 to 18 percent; not great, but better than 24 or 29 percent). Your best bet is to apply with companies that are actively seeking new creditworthy applicants, like Chase and Discover. Chase’s Freedom card has been a perennial favorite of card-critics for its simple rewards program, and the new Chase Slate card provides a lower rate, albeit no rewards, for customers who want the flexibility of paying some purchases over time.

• Compare and apply: See my list of recommended credit cards.

What about you? Have your credit card interest rates gone up? How high? What have you done about it? Please share your story in a comment.

But like most people I know, that’s about the extent of the time and energy I’ve invested in understanding my student loans and student loan debt.

The fact is, we’re borrowing more and more to go to school. The Wall Street Journal reports that the amount of money students borrow has long been on the rise:

New numbers from the U.S. Education Department show that federal student-loan disbursements—the total amount borrowed by students and received by schools—in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion…Today, two-thirds of college students borrow to pay for college, and their average debt load is $23,186 by the time they graduate…

With the cost of higher education soaring and the pressures our society places to become as educated as possible, this number will surely continue to grow. That’s a problem, but I’ll leave the debate about how much is too much student loan debt for another time.

The fact is many of us have student loan debt. And how we tackle that debt is one of the first big financial decisions we make once we’re on our own.

1. Understand the Difference Between Private, Subsidized, and Unsubsidized Loans

Student loans come in a variety of “flavors”. Federally-guaranteed student loans are backed by the U.S. Government and, as a result, have low interest rates and are available to most students regardless of credit history. The most common federal loan programs are Stafford loans, Perkins loans, and PLUS loans (for parents).

• Subsidized federal student loans are available to students meeting income requirements and do not charge income while you are still in school or during grace periods.
• Unsubsidized federal loans are available to more borrowers but charge interest as soon as they are disbursed.
• Private student loans are not federally-guaranteed, require good credit, have higher interest rates, and charge interest as soon as they are disbursed.

2. Grace Periods and Deferment

Federal Stafford loans have a six month grace period; Perkins loans have a nine month grace period. That means you aren’t required to start paying them back until six or nine months after you graduate or cease being a full-time student. If your loans are subsidized, you won’t pay any interest on the balance during that time. If the loans are unsubsidized, however, interest will accrue, so it’s a good idea to make payments anyway.

If you are having trouble finding a job or are not working, you may be able to contact your student lender and defer your loan. Just remember that if you have an unsubsidized loan, interest will be accumulating.

3. Student Loans Must Be Paid!

The consequences for defaulting on a federal student loans are more severe than failing to repay other debts (e.g., a credit card). If you fail to repay a student loan, not only will you ruin your credit, the government can seize your federal tax refund, garnish your wages, sue you, and cut off federal benefits like social security. Finally, federal student loans cannot be discharged in bankruptcy; so even if you hit rock bottom, you will still have to pay up for your education!

4. Student Loan Interest is Tax Deductible

On a more positive not, if you earn less than $70,000 a year, you can deduct up to $2,500 of student loan interest on your federal tax return, even if you don’t itemize your deductions. Each year, you should receive form 1098-E from your student loan lenders, detailing how much interest you paid (and can deduct).

5. Student Loans May be Forgiven

If you enter a career that serves the public in high-need areas (such as teaching or delivering healthcare in rural, low-income regions), you may qualify for programs that will forgive a portion of your federal student loan debt. Consider, however, that you may have to work in the qualifying field for several years before qualifying and that the amount of the loan forgiven may be taxable as income. Check with your school or professional organization for information about loan forgiveness programs. Additionally, federal student loans are canceled if you die, meaning your spouse and children won’t be burdened by them.

6. Some Consider Student Loans “Good Debt”, If There Is Such a Thing

You may read about “good debt” and “bad debt”. Basically, some credit experts classify mortgages and student loans as “good debt” because they’re investments in your future, while consumer debt like credit cards is considered “bad debt” because there is little value attached to the debt. This distinction may come into play when you apply for new credit, for example. A lender will look more favorably on somebody with $200,000 in student loan debt from medical school than on somebody with $20,000 in credit card debt. The doctor has ten times the debt, but still looks better to future creditors than the guy with credit card debt.

• What about consolidation? Read more about student loan consolidation.

The other reasons student loans are sometimes called “good debt” is because they tend to have very reasonable interest rates and that interest may be tax deductible. At the end of the day, however, student debt is debt. When people ask whether you should pay down student loan debt early, I say: Only after you’ve paid down all your other non-mortgage debt, have an emergency fund, and are saving at least 15 percent of your income for retirement.