How to Deal with Debt Cycle

Q: I am a well-educated mom who works full time in my children’s school district as a teacher’s aide. My husband is also a teacher in another school district. We both have college degrees yet we can’t seem to figure out how to get rid of our credit card debt and keep it gone. We have paid off our debt twice with home equity borrowing but we still don’t have enough to pay all our bills. We keep trying to pay off the cards but we find ourselves not able to make enough of a payment on them to really make a difference. We need to keep one card for emergencies but before you know it, we have had to use plastic just to buy groceries, gas, school supplies for our kids and other necessities. Help! How do we get out of this cycle?

A: Using credit cards to pay for necessities is an unmistakable sign that you’re in over your head. But so was the fact that you used your home equity to pay off credit card bills.

You probably had the illusion that you were “doing something” about your debt, when actually you just moved it from one bucket (the credit cards) to another (your home). The loans didn’t solve your real problem, which is overspending, so you just ended up wracking up more debt and frittering away a major source of wealth in the process.

Keeping plastic available “for emergencies” isn’t a solution either, since it’s too easy to use the card rather than figure out an alternative. You don’t need to close the account, but until you get your spending under control you should make the card difficult to use–either by cutting it up or freezing it in a block of ice in the refrigerator.

You’ll find plenty of books in your local library on ways to save money, and the Internet is full of Web sites devoted to frugality. But once you’ve identified the easy places to cut back–eating out less, making more meals from scratch, buying fewer clothes, canceling subscriptions for magazines you don’t read–you need to take a hard look at your supposedly “fixed” expenses.

For example, many people find their budgets are perpetually unbalanced because they’re trying to hang on to a home that’s really not affordable. In addition, you may discover you’re simply not earning enough to maintain the lifestyle you want. That means you’ll either need to cut back more, or look for a better-paying job.

Living within your means isn’t necessarily easy, but ultimately it’s a much better–and cheaper–way to live than being perpetually in debt to credit card companies.