10 missteps that will plunge you into debt

Folly No. 6: Expecting your ex-spouse to pay joint debts. If you live in a community property state, and even if you don't, you have to still believe in the tooth fairy to think your ex will make good on the debt assigned in the divorce decree, after failing to make good on your marriage vows. All joint credit, regardless of who is assigned to pay what, will affect both persons' credit histories. If possible, move balances to cards that are in only the name of the person who is responsible for the debt.

Folly No. 7: Being blissfully unaware of how much you owe. Head-in-the-sand syndrome is not helpful when it comes to debt. When I'm overweight I might not look in the mirror, but I still get on the scale. You need to keep track of how much debt you have and have a plan for paying it off.

Folly No. 8: Having no savings cushion. One of the easiest ways to prevent accumulating unwanted debt is to have an emergency savings cushion. When the car breaks down or the refrigerator gives out you'll have money available to cover the costs instead of having to put the needed repairs or purchase on a credit card. This one is not optional; you have to save something, no matter how little.

Folly No. 9: Borrowing from your retirement. Loans from 401(k) accounts are becoming popular ways to pay down debt. What you are really doing is paying for your debt out of your retirement. If you can't afford the payment now, it's pure folly to think you will be able to afford it later when your income drops.

Folly No. 10: Taking on someone else's debt. Co-signing a loan or giving money to adult children to pay down a debt is my last folly. By co-signing, you open up your credit to problems. When they default and don't tell you, your credit is damaged and you get to pay the bill. Give the kids money and they may never learn to save or live within their means. Keep in mind that the person asking for help is in trouble for a reason. The best you can offer is help in fixing the underlying cause, not paying their debts.

Happy 2006, and good luck.

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of Credit Repair Kit for Dummies. Visit MMI for additional debt advice or click here to ask a debt question.