Just when you thought it was safe to go back in the water…oh wait, that was a different movie. Well, the video clip below has nothing to do with sharks, but it’s almost as scary. Boy, am I glad I don’t live “across the pond”. The U.K. government seems to be ready to take the debt bull by the horns and are no longer willing to allow out-of-control spending be the norm.

If the U.S. government doesn’t do something do get our spending under control, we are going to be starring in our own economic horror show very soon. If you think the economy IS a horror show, then to borrow another very familiar line, “you ain’t seen nothing yet.”

I don’t usually link to articles that don’t somehow relate to personal finance, unless it is an article/post that deals with the national economy. Today I came across a very good article written by Lance Burri at Right Wing News. The title of the article, “Keynsian putzery“, almost caused me to skip to the next post. I don’t even know what Keynsian putzery means, but I am glad I didn’t skip this one, and I hope you will read the article also.

The best quote from the article:

what we’ve done over the past couple of years has had great bearing on our long-term problems. What we do “over the next couple of years” most certainly does have bearing “on our ability to deal with these long-run problems.”

Mr. Burri hits the nail on the head with this one, but I want to inject that this is not a Democrat or a Republican problem. This is a United States of America problem that both Democrats and Republicans have had a hand in making.

However, the problem isn’t unique to the Federal government. The majority of families that have found themselves in trouble financially took years to accumulate the amount of debt they have. Some will say the hole is too big to get out of and simply give up. They need to understand that years of bad mistakes can’t be corrected overnight, but correcting the problem does begin today.

It begins with sacrifice. It begins when we realize that the government can’t (and won’t) fix our problems. It begins by deciding today that you cannot continue living like yesterday. The decisions you make today will influence not just your own future, but the future of your family.

When the government realizes that correcting the broken economy means that we can no longer spend money we do not have, we will begin the journey, as a country, to correcting our broken economy.

My first car was a 1981 Chevy Impala. That car was a tank compared to the tiny Toyota Prius that I drive today, but it was a lot of fun to drive. You could pack a lot of people into that car and I could almost stretch out completely in the back seat and take a nap. My parents gave me the car when I was in college and it was perfect for that time in my life.

As I mentioned, today I drive a used 2002 Toyota Prius and I have learned a lot about purchasing cars since those days in college. The most important thing I have learned as that the way a car looks doesn’t really impact the way it drives. The next most important thing I have learned is a car that doesn’t have a payment, is really a cool car. The last two vehicles we have purchased, we have done so with cash. Granted they were both used cars, but a good paid-for used car is really good on the budget.

Stew from Gather Little by Little shares some lessons on buying cars from his personal experience. Stew lists 6 things that he has learned with regard to owning cars. For most of us, car ownership is a necessity, but that car doesn’t have to be a new car, and it doesn’t need to have a payment.

Whether you are in debt or simply looking for a plan guaranteed to help you become Financially Free, there are a lot of great resources out there that can help. I have mentioned that I am both a Dave Ramsey certified counselor and a Crown Money Map coach. Both of these programs are designed to help you reach a point with your finances where you are debt free, building wealth and able to serve God through giving whenever He calls.

Dave Ramsey has the baby steps and Crown has the Money Map. Although slightly different both are great tools that will walk you through the steps to reach your goal. For a limited time you can get a free copy of the Crown Money Map.

This catchy little phrase is used by Capital One in their television advertisements. This basic question is designed to make you switch from your current credit card to a Capital One credit card because of all of the benefits they provide. I came across an article on MSN Money detailing the impacts of having a credit card that is never used. The author Jeremy M. Simon of CreditCards.com (not surprisingly) discusses why you should keep that unused account open and why you should start using the card. He begins his answer by saying “If your primary goal is maintaining your credit scores, you should leave that extra card open — but not unused.”

My question is why should our primary goal be maintaining our credit score. Shouldn’t our primary goal be something like, providing for my family in case of emergencies? or meeting the daily needs of my family without having to borrow money? In the article, one of the reasons for keeping the card open is for emergencies. I understand the emotional aspect of having a credit card for emergencies, but not the logic. If you have an emergency that you can’t cover with available finances, how does going into debt make sense?

The article continues by giving an example of debt-to-credit ratios, and shows how closing an unused account would drive that ration up. Being a math guy, I can agree 100% with the mathematics of the statement. However, there is more than one way to lower the debt-to-credit ratio. Ready? Pay down the debt! That’s right, you could leave unused cards open, or pay down the debt. As a matter of fact, if you pay off all of your debt, you could get rid of the credit cards and not impact the debt-to-credit ratio, because with zero debt, you won’t have a ratio.

Finally, the author at the very end of the article includes this statement “If you’ve been a responsible borrower, it’s unlikely that an account closure would have much impact.” The truth is maintaining your credit score has more to do with not carrying debt and when you do, making payments on time. Personally, I still like the cash system for most day-to-day expenses. It may not work for everyone, but it does for us.

A couple of days ago I was asked by two different people about debt consolidation loans. I will state up front that I have used a debt consolidation loan in the past. The process of getting the loan was easy (because my credit was good), it was very organized (because the business has been around for quite a while), and I immediately felt a lot better about my financial situation (because I didn’t know any better).

I am sure there are people out there that have gone through debt consolidation loans and everything worked out very well. I would say that if that is you, then you are the exception not the rule. For most people everything that is wrong with debt consolidation begins a month or so after you complete the deal.

First, let’s look at why debt consolidation loans are so attractive. All of these benefits are offered in a general sense. There may be some outliers, but for the most part, the following list is what is promised and what draws people into the debt consolidation trap.

1. you will have single loan rate that is lower than the average of the debts you are consolidating
2. you will have a single payment that is lower than the sum of the payments you are consolidating
3. you will be working with a single creditor – often a bank – instead of credit card companies
4. you will have extra money each month, to do those things that make you happy

After reading that list again, I can really understand why so many people use the debt consolidation as a means of managing their financial picture. However, the problem isn’t what is on the list, the problem is what is left off of the above list. The problem is what gets people into trouble in the first place – overspending.

People that need debt consolidation loans are people that have more debt than they can (reasonably) pay back. They have either dealt with an emergency situation that caused them to borrow money (because they didn’t have an emergency fund) or they simply have been living a lifestyle that exceeds their paycheck. Either way, the one thing that gets most people in trouble with debt consolidation is lack of discipline.

Not having creditors calling anymore, not having to worry about which bill to pay, and the feeling that you are finally on the right track to getting things under control is all an illusion. Unless you have dealt with the overspending that caused you to need the debt consolidation loan in the first place, it is very likely that you will continue with the same lifestyle. That lifestyle will in just a few short months look like three credit cards with a monthly balance and you wondering what just happened.

So what should you do? Run! Run away from the idea that a debt consolidation loan is a wise decision. Run away from the lifestyle that is out of control with spending. Run away from the friends that aren’t looking out for your best interest…and while you are running, look for someone that will hold you accountable for your decisions. The best alternative to a debt consolidation loan is a budget and if necessary a second (temporary/part-time) job.

Financial freedom is possible, without debt consolidation. Either way it will take time, but the first step must begin with a decision to start living on a budget that is designed around your actual take-home pay. Don’t think that borrowing money is the way to get out of debt. That is the plan the government is on right now, and look how that is working out for your tax bill.