The LA Times just did their latest “money makeover” of a household that struggles with finances, but not their dreams. Basically, Biddle and Brown have goals:

• fund a wedding
• reduce debt
• buy a house
• pay for a Master’s degree
• pay for a Doctorate degree

There’s a bright spot in their story: decent cash flow from two incomes. This provides wiggle room. But between the two of them, they have credit card debt with interest rates exceeding 45% and student loan debt. The LA Times recommends that they get rid of their credit cards (except for one – for emergencies), stop paying more than the minimum payment on their student loan debt, and consolidate their debt using a credit counseling service. The first two recommendations are great starts to getting back on track. However, consolidating debt using a credit counseling service can not only prolong the financial pain through higher fees and expansion of the debt repayment period, but actually cause damage to their credit scores. Maybe the couple should consider doing the following:

• Cutting up but not closing all of their credit cards.
• Calling each the credit card lenders and student loan issuers to renegotiate a repayment schedule and interest rate freeze or reduction, especially on the revolving balances with astronomical 45% interest.
• SET UP AND LIVE BY A BUDGET.
• Use all funds north of their basic living expenses for snowball debt reduction payments until the debt is gone.
• Take a hard, ruthless look at spending, and cut out as many monthly recurring charges as possible: no more frivolous subscriptions or services that nickel and dime one’s wallet at the start or end of each month.
• Consider relocating their home to an apartment or house with lower monthly costs.
• Sell the stake in the time share, and apply those funds directly toward credit card balance reduction, starting with the highest interest rate account first.
• Inquire about deferment options on the student loans, including a federal consolidation if the loan is not classified as private.
• Consider selling the Mini Cooper if taking public transportation to and from work is an option. That cash generated can be directly applied to the outstanding credit card debt or toward the creation of an emergency fund.
• Switch to using cash for as many transactions as possible.
• Stop further contributions to retirement accounts and instead apply those funds to aggressive debt paydown.
• Monitor debt reduction achievement on a month by month basis.
• Delay the graduate degrees, unless scholarship money to fund them can be lined up. Set up a clear timetable to attend graduate school after educational savings are created and/or personal finances reach a healthier point, using the intervening time to bone up on skills and topics that will make the academic experience easier and more worthwhile.
• Get serious about having the wedding in a park with modest services and snacks. Isn’t the fun of a wedding found in the people who attend and not the money spent?

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.