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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

5. You don't want to fight rush hour traffic at age 80. College education savings or loans (See the third item on this list) should not jeopardize your own retirement. Providing for a child's education without regard to your future may hurt you in the long run. It may also add a future burden to your children if you don't save enough for retirement and need their financial help to get by.

Balance the educational wants of your child with your needs in retirement. That way, both of you will benefit.

6. You don't want the next layoff to trigger a stroke. Financial emergencies can be predictable. It is more likely than not that you won't work for the same company for the rest of your life. Keeping three to six months of living expenses in savings will help you pull through life's financial crises.

Without a savings cushion, a crisis may force you to add to your debt load, subtracting from your confidence level when you need it most and maybe jeopardizing your health.

For more information, read Bankrate's "Why do you need an emergency fund?" from its Financial Literacy series on emergency funds.

7. You don't want to pay for a car you no longer own. Becoming upside down in a car loan and losing your vehicle to repossession can happen faster than you may think. Do not purchase more car than you can afford and avoid the "no down payment" snake oil pitch.

Owing more than a car is worth gives you few options if your financial situation changes and you need to downsize your vehicle. Repossession has a big negative impact on your credit (See the first item on this list) and you could get hit with an unexpected tax bill for your trouble.

For more information, read Bankrate's article "9 ways to avoid and correct upside-down car loans."

8. You want the next 10 years to be better the last 10. Like your father's Oldsmobile, this year's bankruptcy law is not what it used to be. Obtaining a clean slate through bankruptcy is more difficult than ever, especially if you're trying to wipe the slate completely clean. Due to changes in the bankruptcy law, it is now harder to qualify for Chapter 7 bankruptcy, where all of your debts are wiped out.

More often, people now must file Chapter 13, where only some of your debts are forgiven. As a result, if you file bankruptcy today, you are more likely to live with the IRS telling you how much to spend on groceries for years to come.

For more information, read Bankrate's "Considering bankruptcy: an introduction."

-- Posted: Dec. 28, 2007
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