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Special section Experts' 8 smart moves for '08

Debt can have a devastating effect on your life. The Debt Adviser offers eight reasons to be careful with the money you owe in 2008.

8 reasons to manage debt

8 reasons to manage debt in '08

Debt's toxic effects know few boundaries. Not only can it wreak havoc on your finances, but it can also limit your options in many different areas of your life.

Here are eight reasons to be careful with debt in 2008:

8 reasons to be careful with debt in '08

1. You want to increase the odds of a work promotion. Good credit helps you qualify for credit cards or a top interest rate. Increasingly, it can also help you bag a job or job promotion. Credit scores may also impact insurance rates and the ability to rent an apartment.

Thirty percent of your credit score is based on the amount and type of debt you owe. Your score will be higher if you have a high ratio of credit available vs. debt owed. So for 2008, lower your total debt load and avoid incurring additional debt without a plan to pay it down in a reasonable length of time.

For more information, read Bankrate's story "5 tips to improve your credit score" from its Financial Literacy series on credit scoring.

2. You like living in your current house. Think twice before spending the equity in your home. The housing market is changing fast and many people who tapped equity in their homes are finding that equity has shrunk or disappeared. Carefully consider the risks before using your home to secure unsecured debt.

3. You want to avoid paying another's debts. Co-signing a loan for anyone is bad debt waiting to happen. Take into account whether or not you can afford to pay when -- not if -- the other person defaults.

Also, consider the damage to your credit history when a collector calls to tell you the other person defaulted 90 days ago. By that time, the default likely has already appeared as a negative on your credit history. Can you afford a dip in your credit score? (See the first item on this list) Do you want to take the chance?

4. You want to remain on dinner invitation lists. Taking on someone else's (parent, kid, relative or lover) debt puts your own financial life in jeopardy. You not only put your own financial situation at risk, but also potentially enable the other person's situation to continue or get worse. In many cases, you'll end up being labeled as the cause of the problem for failing to do more.

Debt management help is available and typically is a much better experience for all. It's almost always better for people in debt to work out their own solution rather than getting bailed out.

For more information, read Bankrate's special section "Debt Management Basics."

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