Here’s why.

Let’s say you want to buy a new car. That is typically a five year loan, sometimes even a three year loan.

If you refinance, you have just extended the life of your home loan – resetting the clock and making the loan last 30 years.

The minute you buy your car, its value decreases. So you have taken money out of your most valuable asset, your house, making it less valuable. You have put that money into a depreciating asset. Your car will get less and less valuable over the years. After five or six years you are very likely going to be looking at a new car. When you trade your car in, that $30,000 car is now going to be worth only a few thousand dollars in trade-in value.

Let’s say that it’s new furniture or a new television set that you want. Again, these items will depreciate in value over time. By the time your television dies in ten or 12 years it will be an outmoded relic with practically zero trade in value.

So what’s a better choice?

There are never easy solutions – but honestly, the better choice is to only buy what you can afford, and not cannibalize your home’s value.

Buy a used car and a used television set and furniture from consignment stores. And if you can’t afford them…save up until you can.

Otherwise you will very likely end up stripping away all of your home’s equity with nothing but some used goods to show for it in the end.

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In other words they pay for essentials, they pay what extra bills they can, and then whatever is leftover, they save.

This is the wrong way to do it. Why? Because you’re always find things that you “have” to spend money on – things that aren’t truly emergencies. Instead, you need to spend what you don’t save.

How do you do this? You decide how much you are going to save every month, even if it is only $100 a month, and you set up an automatic withdrawal system so that money is taken from your checking account and put into a savings account – preferably one where it is difficult for you to withdraw it on a whim.

Consider this to be an additional bill that you are paying every month. Another way to look at this is that you are “paying yourself first”. Your future, your financial security, are of the utmost importance. More important than movie night with the family, more important than those new jeans or that new ipod or those caramel latte’s you buy at Starbucks every week.

If you rearrange your finances and your thinking to “pay yourself first” and immediately put part of your paycheck into a savings account every month, you will find that saving becomes easier and you will watch your savings account grow every month.

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However, if you look deeper, you’ll probably see that some of the blame lies with your priorities, and with spending money on the wrong things.

The top financial priority should be paying bills on time, saving for the future (retirement, kids college, emergencies), and THEN some fun money.

Unfortunately, most people put the “fun money” right after paying the bills.

If you have bought a television set, DVD player, ipod, stereo system, etc., on credit because you couldn’t pay it off right away…

You need to look at your priorities.

If you haven’t worked out exactly how much you can set aside for savings every month, and set up a way to transfer that amount into a savings account…

You need to look at your priorities.

If you spend money on anything that’s not a necessity but don’t save money…

You need to look at your priorities.

If you let what friends or your significant other or your children think influence you into spending money that you can’t afford to spend…

You need to to look at your priorities.

And if you do that, when times are hard, you will always have a savings cushion and you will be less subject to financial disaster because you”ll be well prepared.

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Let’s start with the biggest expense – your monthly mortgage. It is always worthwhile to periodically revisit your mortgage and see if you can refinance and get lower payments. The difference can be hundreds of dollars a month. To do this, you must make sure that your credit is excellent, so if it isn’t – work on repairing your credit before you try to get your mortgage refinanced. That takes time, as long as a year or two.

Now look at your utilities. Chances are you are paying more than you should be. Any cracks in windows, around doorframes, anywhere in the house, will cause your air conditioning bills and heating bills to skyrocket. So can a poorly working chimney.

You can frequently order an energy audit for free from your local power company.

If you have old, inefficient appliances, they are also a huge energy drain. It’s worth it in the long run to get a newer, more energy efficient stove and refrigerator.

Television sets left on 24/7 can add a dent to your utility bill as well.

And what about pest control? Termites, carpenter ants and rodents can cost you big time in the long run. You must make sure that you have a reliable exterminator regularly checking for destructive pests on your property, before they cause major damage to your home which will cost you a lot more than the price of maintenance.

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Even if you are in debt because of a medical issue, a layoff, or other unavoidable life catastrophes, there is almost always an underlying issue which caused you to spend money where you shouldn’t have, which means you didn’t set aside enough money for emergency savings.

Do you spend too much on your family? Do you buy lavish gifts, pay for private lessons, splurge on expensive vacations? You need to realize that doing so is ultimately hurting your family, not helping them. If you don’t have a year’s worth of emergency money set aside, and a healthy chunk of money going into your 401k and your children’s college fund every month, you CAN NOT afford any extra spending.

Do you spend money try to impress others? If so, when you are laid off or your mortgage resets or you are laid off or your company goes out of business, are those “friends”, neighbors, et cetera, going to pay your bills for you because you spent all your money and have no savings? Highly unlikely. You need to put your needs and your family’s needs FIRST before you buy expensive toys or a house you can’t afford or a Hummer instead of a VW.

Do you spend money to feel better about yourself, to fuel some inner need? If you can’t stop yourself and rein in your spending, you might want to seek counseling so that you can find healthier methods of rewarding yourself.

Do you spend money to impress a significant other? Keep in mind that if you want a long term relationship to be successful, you need to be financially compatible and you need to be honest with that person. Spending money that you can’t afford is not being honest. If they will only stay with you as long as you are spending money you don’t have, you’re going to run into problems sooner rather than later.

So if you are in debt, you need to examine what caused you to be in debt in the first place if you are ever going to truly get a handle on your finances.

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That just leads to more debt that needs to be repaid.

Instead, we mean joining forces to lessen your expenses so you can get out of debt faster.

For example, hiring babysitters is expensive. Many friends get together to create babysitting clubs, where they work out a schedule taking turns to babysit each other’s children on agreed-upon nights.

Buying groceries costs less when you do with friends. Here’s how: join a cost-saving club like Sam’s Club or Costco, and buy in bulk. Then, split the costs with your friends. Work out beforehand what you all need – toilet paper, steaks, pasta, batteries – and how much of it you need.

Buying in bulk is always cheaper. Then, divide up what you’ve purchased and split the cost with your friends.

Going out to dinner is expensive. Instead, organize a pot luck block party or a pot luck get together with friends. Make it a regular event meeting at different people’s houses. Mix it up a little; have pot luck picnics when it’s nice out,

Getting in shape can cost a lot of money. Instead of joining a gym, organize a walking group, or join a walking group. Or a bicycle club or rock climbing group or hiking club, whatever you enjoy.

Or, if you want a personal trainer, ask about group rates. Often trainers will agree to train a group of several friends, and the cost per person will be lower than the individual rate.

Start carpooling with friends and neighbors when you have longer trips to make. This saves money on gasoline and wear and tear on your vehicle.

The principle here is – everything is cheaper when you divide up the cost. It’s also more fun and more social and forms deeper bonds with your friends, neighbors, and community.

So don’t try to pay off your debt all by yourself – get a little help from your friends.

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But is credit really a necessity of life?

Remember, credit cards haven’t always existed. Before the 1960s hardly anyone had them and it wasn’t until the 1970s that their use became widespread.

If you don’t have credit cards or the ability to borrow, what does that mean? It means that you can only buy things that you can truly afford.

Yes, we all WANT a bigger, newer TV, a new wardrobe every season, a visit to the best salon in town, a vacation by the sea every summer and a ski trip every winter, $200 workout shows…but we don’t need them. And if we can’t afford to pay for them, should we borrow money and go into debt to do so?

If you want to buy plane tickets and rent a car…get a debit card. And make sure that you have the money in your account before you try to purchase anything.

Get used to shopping consignment stores, thrift stores, and discount shops like Costco or Sam’s Club.

If you need money and don’t have enough in your bank account…work longer hours, get a second job, or sell off some of your possessions. There is no such thing as free money – any money that you borrow now, you must repay later or your credit will again be ruined.

And if you pay for something yourself, all at once, you are paying the real price for that item. If you pay for something on credit, you may pay two or three times the price of that object over the lifetime of the loan.

So if you’ve trashed your credit, don’t be so quick to try to qualify for new credit cards again. Life without credit can be better than you think. It’s certainly better for your finances.

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But if you’re deeply in debt, what can you learn from a millionaire? Plenty. Most people who became millionaires have sensible financial habits, which, if you follow them, can lead you out of debt and on your way to building a healthy financial future.

Among these habits that are shared by most people who have become millionaires:

NEVER go into debt because you worry about appearances or keeping up with the Joneses. Note: this doesn’t meant that personal appearance or grooming doesn’t matter, or that maintaining a decent standard of living doesn’t matter. It means that you should only pay for what you can afford, and you shouldn’t try to compete with others for appearances’ sake. You need a watch; you don’t need a Rolex. You need a car or truck; you don’t need a Hummer or a Merecedes Benz. You need to get regular haircults; you don’t need to visit the best salon in town.

Keep a budget and know where every penny goes.

Set specific, realistic goals and do whatever it takes to meet them. Pay your bills, then create categories for savings, for investing in a business if you have one, for special occasions, et cetera.

Buy quality used items rather than new.

Don’t be afraid to bargain, negotiate, and ask for what you really want. As they say “If you don’t ask, you don’t get”.

Millionaires are not generally the people driving the Hummer to their mortgaged McMansion, dripping with gold jewelry. Those people usually are living on credit and these days, on the verge of losing everything that they own. Millionaires plan, and save, and don’t live their lives to impress other people.

And if you start doing the same, you will much more quickly find your wait out of debt, and on your own path to financial success.

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Your credit score – at the very least, check your credit report once a year to make sure there is no inaccurate information on there, but if you can afford it, it’s worth paying for monthly credit checks. That way if there is ever an inaccurate ding to your report you can check it quickly.

Your credit card bills – Read them from beginning to end carefully because credit card companies are dong all kinds of sneaky things these days. They may lower your credit limit, which makes it look as if you’ve charged to the max even though it’s not your fault; they may raise your interest rates drastically if you pay late on ANY bill, not just theres.

Your cell phone bill – there are an astounding amount of errors on them. You also may be paying for things that you don’t need, like a texting package or internet service that you never use.

Medical bills are also frequently riddled with errors, and guess what, amazingly, they are almost always in the doctor’s or hospital’s favor. Look up Medical Billing Advocates on Google if you think that your medical bill is signficantly off; they often will work on a contingency basis.

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How do you think people survived before credit cards were invented? The first credit card ever invented was the Diners Club card in the early 1950s, and it wasn’t until decades later that the use of credit cards became as widespread as it is today.

The problem with credit cards and with credit in general is that few people acknowledge the truth about how they work: you will borrow money thinking that you are going to pay it back quickly, and then you will end up instead making payments for decades, paying double, triple, quadruple the purchase price of the product. And credit cards will keep you poor, not rich.

So how do you live without credit?

1.) Get a debit card. You don’t need a credit history for that. And with a debit card you can’t spend more than you have.

2.) Need a car? Buying new cars rarely makes financial sense – they lose value the minute that you drive off the lot. Do your research and find a used car that you can afford to pay for. And then take the money that you have always been paying for car payments and save that money every month, in an interest bearing account, so when your used car needs to be replaced – you can buy a new one with cash.

3.) Give yourself a cash allowance every week for lunch, gas, entertainment, etc., and do not exceed it.

4.) Want to buy a house? These days, you have the option of buying an owner-financed house. If you can put down as little as $5,000, and can make regular house payments, you can find homeowners who are willing to wheel and deal. If you DON’T have $5,000 to put down and you can’t be sure that you can make the monthly payments – then you should not be buying a house. Note: there are numerous things that can go wrong with owner financing, so make sure that you have your own lawyer read over the contract for you.

5.) Cell phone companies may require a credit history for their two-year contract plans. So instead, for cell phones, do the pay-as-you-go option. There are very affordable plans these days, some in the area of $40 to $50 a month for unlimited minutes.

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1.) Clean Your Air Filters. When they get clogged with dirt, dust, pet hair, etc., not only does that affect the air quality in your home, it drives up your energy costs significantly. Aim to change your air filters at least once a month.

2.) Find out if your power company will send someone to your house to do a free energy audit.

3.) Hire someone to do an HVAC inspection if you haven’t had one done in a while. Your heating and air conditioning system accounts for about a third of your home’s energy costs and if it is not working efficiently you will see it in your monthly bill.

4.) Do you have an old refrigerator and stove? Those are also major energy guzzlers. When you shop for new appliances, find one that is Energy Star certified. They are more energy efficient than appliances that are not certified.

5.) Check to make sure that you do not have any water leaks anywhere, including outside where you may have a garden hose.

6.) Do your windows and doors have drafts? If they do, every time you turn on your air conditioner or heater, money is literally flying out through those cracks. Money spent now to fix those can pay back many times over in lower energy bills.

7.) Set your heating/cooling system to “auto” rather than “on” – make sure that it shuts off when the desired temperature has been reached.

8.) If you are going on vacation, or going to be away during the day, you don’t need to heat/cool your home to the same level – a couple of degrees on the thermostat can save you a lot of money every month.

9.) Buy energy efficient lightbulbs.

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In fact this is one of those times when spending a little more up front right now can save you a lot in the long run.

Hiring a heating/airconditioning technician to check your unit and make sure that it’s working properly is a very good idea. Your air ducts may need cleaning, coils may need cleaning, filters may need to be changed more regularly…spending $60 or $80 once could save you that much every month in heating or air conditioning bills.

Also, consider your refrigerator – an old, inefficient refrigerator can burn a lot of energy. When buying new appliances consider buying ones that are approved by EnergyStar.

There are some things you can do yourself, for free. Check every single window and doorway for drafts. If there are drafts, fix them; you’re paying to heat or air-condition the whole outdoors!

Change your air filters regularly. Check them and if they look at all dirty, they need to go immediately.

Check for water leaks everywhere, including outside where you may have a garden hose. A little leak can cost you hundreds of dollars in a months time.

Check for continously running toilets, which can run up your water bill considerably.

And remember that the recommended temperature settings are 78 degrees in the summer and 68 degrees in the winter.

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The important thing to do is sit down and make a new life plan – a plan to be debt free.

Once you make being debt free a priority, you will start to re think the way that you live.

You will realize that every frivolous purchase takes you further away from your goal – to be able to say “I have no debt”.

You will start to come up with creative ways to save money, and to still have fun. You’ll get movies from the library instead of renting DVDs or paying an expensive cable bill. You’ll buy designer clothing at consignment store for a few dollars instead of at a department store for a few hundred dollars.

Or, you’ll realize you don’t need more new clothes when your closet is already stuffed full.

You’ll look around your house and see the items that you haven’t used in years, that someone else could use – and you will sell them on ebay or in a garage sale or at a consignment store.

You’ll realize that a larger house isn’t a necessity, it’s a luxury, and it costs more to heat in the winter and cool in the summer and it costs more every summer in taxes.

You’ll shop around to find the lowest price when you need to buy something new.

And as you put all of that money that you save towards your debt, and watch the total number of your debt shrink every month, you will feel great satisfaction in moving towards your goal.

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According to the Federal Reserve, up to 79 percent of credit reports contain errors, and 25 percent of them contain errors so serious that they result in credit being denied.

This is especially crucial these days when loan standards have tightened and if your credit score is less than perfect, you may not qualify for a mortgage, car loan, or student loan.

A low credit score also means much higher percentage rates on your credit cards, your mortgage loans, your credit cards, and any other loan that you are approved. You could easily end up paying thousands of dollars a year more than necessary simply because of errors on someone else’s credit score.

It is vital that you regularly review copies of your credit report to make sure that it is accurate. If there are errors, you need to send a letter to the credit reporting agency disputing it, and to the company that provided the inaccurate report.

You must keep pursuing the credit agency and the company which gave the false information, sending them letters and keeping copies of all correspondence to and from them, until the errors are removed from your report.

If you don’t, you are giving away money that you could be saving or using to pay off bills.

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Dumb money moves, that risk your financial future, include:

1.) Applying for too many credit cards – especially if you know that you are not good at balancing a budget or if you have poor self discipline when it comes to spending. One credit card, paid off on time and in full every month, is plenty.

2.) Buying items like furniture or television sets or boats or other luxury items, on credit. If you can’t afford it new, then buy it used and pay in full, or do without. Otherwise you will be paying for an asset that lost value the second you bought it, and you will likely be paying for it long after the item is obselete, broken, scuffed up, and basically worthless.

3.) Paying your credit card bills late.

4.) Borrowing against a home equity line of credit for anything other than a life or death emergency.

5.) Living without a budget. This is almost a sure path to debt, no matter how much you earn. If you do not know how much you spend every month, how much you earn every month, and how much you owe in monthly bills, it will be very hard for you to start setting aside savings, much less pay off debt.

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