John Muntz’s testimonial on his struggle with debt consolidation is particularly heartening, especially given how taboo talking about personal finance can seem.

Thanks to John’s brave confessions, we can glean many helpful lessons on what not to do moving forward. Afterall, one of the greatest causes for hope – seriously – is that no matter the financial mistakes anyone has made in the past, there is always room to change for the better and get back on track starting NOW.

That said, here’s a quick list of some of the lessons learned. Feel free to add comments, thinking of your own lessons learned about what not to do regarding credit cards, spending choices, or even debt in general.

LESSONS LEARNED:

• After receiving one credit card and thereafter getting into debt, never sign up for an additional credit card — UNLESS you have assessed your financial status, have decided on an effective and realistic debt elimination strategy, and one component of that strategy is to use the zero percent offer option to cut off interest-driven balance growth while the debt is aggressively paid down.

• In almost all cases, do not opt for the services of a for-profit debt consolidation company. Not that so-called “nonprofit” debt consolidation companies are going to be a big help, but consolidation services for most types of consumer debt usually cost more in the long run, either through higher interest rates on your outstanding debt balances, or other worse terms of repayment, such all a lengthened repayment period. Get out of debt the smart way by using a free debt service that aggregates, organizes, and prioritizes the debt amounts for you!

• If the minimum payments cannot be swung, call the credit card lenders directly and explain your financial situation. Explain to them your willingness to repay the debt, and need for more reasonable terms. In all honesty, this strategy may or may not work, but it is definitely worth the attempt. Part of what makes a lender more likely to renegotiate unfavorable terms on your existing debt is fear that it will somehow not be repaid, either simply due to the real inability to do so, or through another means, such as being discharged, possibly through bankruptcy.

• Realize that protecting your credit rating is important, but that reducing and ultimately eliminating debt is even more critical. We’ve written articles on credit ratings, and interestingly, one’s credit score even impacts one’s ability to get out of debt! But certainly the wrong thing to do is fret over moderate nicks to one’s credit score if a particular course of action can lead to significant debt paydown.

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.

Here’s a list of the blog carnivals from that past week with some of the most interesting content on debt and other personal finance issues:

Carnival of Debt Reduction

Bankruptcy and Debt Carnival

Carnival of Twenty Something Finance

Rich Life Carnival

Carnival of Road to Financial Independence

Carnival of Everything Money

Carnival of Wealth, Money, and Life

Personal Finance News Carnival

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.

“UNBROKE,” the television special on ABC, just aired. The one-hour program was designed to reach out to Americans and explain some basic economics concepts, stocks, bonds, 401(k)s, and debt. On the whole, the program was good as a primer to get people motivated to get up and do something about their financial problems. The trouble is, though, the advice they give doesn’t always pass muster. If you caught the show, here’s some of the content seen through the “DebtGoal” filter:

• The UNBROKE host tells the audience to think about housing as an investment. Really? Calling housing an investment would be slightly more compelling if there was guaranteed income to swing mortgage payments, but in our current economic environment, income insecurity is a major factor in the risk part of the home ownership equation. Housing historically hasn’t even been the top competitor with other forms of investment, all corollary costs of ownership included. It is much more accurate and helpful to treat housing as an expense in one’s budget.
• The UNBROKE host makes an unforgettable quip about retirement: counting on social security checks alone to fund one’s retirement places them at the poverty income level.
• And Seth Green? Lots of entertainment, but little commentary on the specifics to his decision-making process on the right moment to buy a home, invest for retirement, or money management. The best part of his presentation is his admitted modesty when it comes to housing.

My most glaring issue with the presentation is that they encourage a target audience that may carry substantial non-mortgage, non-educational debt, like balances on their credit cards, to invest in stocks right now. This is hands down a bad idea: credit card debt, auto debt, and any other high interest loans should be prioritized for elimination before investing in the stock market, especially in a non-retirement account for which there is no immediate or future tax advantage or matching employer contribution. This is not to say that one should liquidate one’s existing retirement accounts — an action that comes with penalties — but rather completely stop making additional contributions to retirement and non-retirement investment accounts and instead funnel cash into high interest debt reduction as soon as possible. This advice holds even for those who are at high risk of defaulting on their mortgage — the potential gain from buying stocks and bonds right now is unlikely to be justified when faced with the foreclosure and loss of one’s home.

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.

Henry Blodget on The Business Insider points to economic data and mentions that the worse of this recession may be over for the American economy. Specifically, he suggests that contraction of real GDP at annualized rates of 6.3 and 6.1% in the fourth quarter of 2008 and the first quarter of 2009 mark troughs in the crisis. Should those with debt breathe easier? A reduction in household net worth and a plunge of the worth relative to debt are reasons to be extremely cautious. These factors can dampen prospects for economic growth moving forward, thus exacerbating even personal debt problems that may appear temporary at the moment. Even the notion of housing as a “sure bet” for one’s long-term investments is being called into question these days, and rightly so. So what is a sure way to get back on track?

Reducing expenses will be key. Reduced costs in turn decrease the debt pain experienced from costly, unexpected emergencies; they minimize the negative consequences from job/income insecurity; and they free up cash for debt reduction. To efficiently reduce expenses, consider setting up a budget, separating discretionary from non-discretionary costs. Also, track debt using a simple form, making sure to check levels and progress periodically.

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.

A few weeks ago the federal government inaugurated a new website that helps homeowners understand more clearly their options with government programs to help refinance or otherwise restructure their mortgages. A number of programs exist. Eligibility varies, but the website provides a quick questionnaire to help gauge if you qualify. Mindful of the fact that not everyone who qualifies, nor even all who struggle with debt, should opt for a refinancing scheme, the website:

• points consumers to HUD-approved financial counselors
• provides a helpful yet basic checklist of what to know about your mortgage and other personal financial information. This list of data will be important to know when evaluating any course of action on your mortgage, not just when looking to refinance.
• suggests prominent warning signs of foreclosure fraud/scams.

With all of the information provided on the site, it is important to consider how a mortgage choice will impact your overall personal debt level, or indirectly make paying off debt more complicated. One example of this is the referral service to financial counselors. Make sure that using one of these financial counselors will not negatively impact your credit report, unless you decide that getting advice through this avenue is more important than protecting your score.

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.