Consolidate secured debt

Is credit-card debt cramping your cash flow?

By raising your prosperity consciousness, you can ease the money squeeze and get on the path to financial freedom

Mention the word downsizing and what usually comes to mind are negative images of job loss and financial deprivation. But downsizing can be viewed another way--as a carefully structured plan to reduce and even eliminate your debt.

There's no special secret to achieving effective debt reduction, but there is a path you should follow. As a financial counselor, I guide my clients in moving beyond practical skills, like checkbook balancing and budgeting, to exploring the emotional and spiritual traits that subconsciously affect their spending habits. Identifying and understanding your belief systems and attitudes about money and the core issues of why you create so much debt are essential to putting a successful debt-reduction plan in place.

I recall one client who had purchased a fur coat she could ill afford. At the time of her "retail therapy," she was angry and depressed because her husband was out of town on their wedding anniversary. After reviewing her spending patterns and leveling with herself, she finally acknowledged that many of her impulse-shopping binges were efforts to make herself feel better about voids caused by unmet emotional needs.

If you're tired of being overwhelmed by debt, living from paycheck to paycheck and wondering why you can't get ahead, there is a way out. When practiced consistently, these five simple steps are guaranteed to bring down the size of your debt.

THINK HOLISTICALLY If you want to change your spending patterns, you'll have to change your thought patterns. * Work on developing a more positive belief system about money. Because our beliefs are typically formed in childhood, we tend to either emulate or go 180 degrees from what we have seen, heard or absorbed from family members, friends and others close to us. What childhood experiences regarding money are you re-creating as an adult? What effects are they having on your current financial life? For instance, if you were raised with the message "Money is the root of all evil," you could subconsciously believe that money is bad. This could explain why you quickly get rid of money by spending it or giving it away. Or you may believe "I just don't understand money," when in fact, it's high finance that you don't understand. Join the club! To better understand your finances, you don't need a Ph.D. in economics. Some simple arithmetic will do. Get clear about how much money comes in and goes out monthly. Balance that checkbook. These very basic measures can help keep you "in the light" about your money and make you feel more financially empowered. * Boost your self-esteem. The way we handle money is a direct reflection of how we feel about ourselves. Dr. Brenda Wade, a San Francisco psychologist, recalls working with a millionaire client who wouldn't pay her Neiman Marcus bill. This particular woman's inner critic was constantly telling her that she wasn't good enough, smart enough or successful enough. Her sense of self-worth was so low that she always found ways to sabotage herself. One way was by not paying her bills, which created unnecessary drama and chaos in her life. For women who chronically need to raise their selfesteem, Wade suggests sitting quietly and affirming to yourself I am enough. I have enough. I know enough. I do enough. Repetition is a powerful way to reprogram your subconscious to accept these ideas as reality. * Develop a prosperity consciousness. Meditate on positive affirmations that can help you envision a life of abundance, such as: All my wants and needs are met, because God is my source or I deserve the best that life has to offer. Visualize prosperity and success. Use your imagination to see your life as you would like it to be. Hold the vision of yourself being surrounded by loving, supportive and nurturing family and friends. See yourself living in your dream home and having an emergency savings account that will tide you over in case of need. Let your imagination expand as you consider all your heart's desires and see yourself with all your needs and wants met. These books can help you develop your prosperity consciousness: Creating Money by Sanaya Roman and Duane Packer (H.J. Kramer, Inc., $12.95) and The Game of Life and How to Play It by Florence Scovel Shinn (DeVorss & Company, $5.95).

Stop Creating New Debt

Debt puts you in a rut, so stop digging! Make a personal commitment to yourself each morning: I will not create debt today. Reward yourself with something small at the end of the month when you've kept your promise. What constitutes "small" depends, of course, on your cash flow. It could be a new compact disc or taking a 90-minute, uninterrupted bubble bath! These strategies will help you cut down on your debting: * Don't play games with yourself. Just because it's on sale doesn't mean you should buy it. Ask yourself, Do I really need another pair of leopard stretch pants? * Close extra charge accounts. Don't use them to fall back on credit; leap forward to solvency! You only need one or two credit cards. * Leave your credit cards at home. Put them in the freezer, a safe-deposit box or the kitty-litter box--anywhere that makes it inconvenient to get to them. P.S.: Don't memorize or carry the account number with you, either. That information could provide unbearable temptation during one of your momentary "slips."

Set a Goal and a Target Date

You need a good reason to be debt-free. What do you keep postponing because you don't have the money? Maybe it's purchasing a new home, taking a Caribbean vacation or starting an investment portfolio. Whatever creates a burning desire and motivates you to remain disciplined is the perfect goal. And when do you want it? In the year 2010? Be specific. Pick a target date, a time to shoot for. Make sure that at the end of each day you've done something to advance toward your objective. For example, did you take your lunch to work instead of eating out with coworkers? Did you resist the temptation to make an impulse purchase? Acknowledge all these small victories as stepping stones to your ultimate success.

Make a Plan

A spending plan or a budget is the road map for your journey to financial freedom. How do you chart your course? First, identify in detail all the areas where you expect to spend money in the upcoming month. Place a picture of your goal in front of you as you create the plan. It will help you prioritize and make choices as you determine how to spend next month's income. Keep in mind that the spending plan is not cast in stone. It should be specific, yet flexible. * Your plan must include a record of every cent you spend, especially the "easy" money you withdraw from the ATM. Get receipts for everything. Track your spending by category. For example, "food" would include meals eaten out for breakfast, lunch, dinner, groceries, even snacks. Total and analyze all your spending for the month. Remember: It doesn't count if you don't add it up! Consider using a budgeting software program like Quicken. Evaluate each category to determine whether you were on target, overspent or deprived yourself.

As part of your plan, you might consider taking out a debt-consolidation loan or a home-equity loan. You could also refinance your mortgage or get a loan against your 401K. Consolidation loans can be beneficial emotionally and financially. Writing out one check for debt payment instead of 15 and knowing the exact date when the loan will be paid off can be major stress reducers. Also, interest rates can be lowered in a consolidation, which means more of your payment goes toward reducing the actual debt. If you own a house, interest on the refinancing or home-equity loan can be deducted from your taxes. Warning: After they're paid off, be certain to close your charge accounts. Leaving old accounts open after getting a consolidation loan could be hazardous to your financial and emotional health. You could easily end up re-creating the original debt and having twice as much financial burden to repay. * Shift debt. If you're unable to consolidate your debt and pay it off with one loan, then at least transfer balances to lower interest-rate credit cards. Don't be afraid to ask your current lender to lower the interest rate on existing accounts. Simply contact the creditor and say you have an opportunity to get a credit card with a lower interest rate. Be as specific as you can. Ask them to match the interest rate and/or waive annual fees. Some creditors will agree because it's a competitive marketplace and they don't want to lose your business. The RAM Research Corporation publishes a monthly newsletter called CardTrak, which lists approximately 500 issuers of low-rate, no-fee, gold, secured and rebate credit cards. It's available for $5 per copy. To order, call (800) 344-7714.