DEBT MANAGEMENT » Get out of Debt

Sometimes bad news ends with good results. Take the current dispatches from the economic front every day there seems to be more disheartening news, from Wall Street, Detroit, Washington, Tokyo and the other big commercial hubs around the world. As grim as it all sounds, however, the silver lining here is that smart people will reevaluate their spending and living habits, and make changes that strengthen them in the long run.

The most recent statistics on American consumer spending are sobering. October saw a 2.8% drop in consumer activity, signaling that people are more interested in belt-tightening than belt-purchasing. Who isnt, given the times? Reigning in your spending in order to live within your means is a no-brainer in any economy, whether its boom or bust. We just tend to forget that when things are going well, and so indulging whims here and there gradually becomes the norm. Its like going on a diet its tough, but in the end youve lost weight, look and feel better about yourself, and saved money on your pizza and ice cream habit. Hard to argue with those results, right?

Prioritizing your needs vs. wants is a good place to start. Cant tell which is which? Mortgage payments, tuition, proper winter clothing and food for your kids are all needs. Spontaneous trips to Mexico and a new Audi when your old Toyota is still running strong are wants. Put a stop to indulging the wants and youre halfway to a rational spending policy and a stronger financial picture. Its not fun, but which is worse going without unnecessary frills or getting slammed by debt when youre anxious about keeping your job? When you get down to it, a leaner and meaner you is win-win, regardless of the economy.

A new twist in the bailout strategy has been decided since Treasury Secretary Henry Paulson announced that the government is no longer going to focus on purchasing troubled mortgage assets. Originally, troubled mortgages were slated to receive a substantial portion of the financial rescue strategy. The newly freed-up resources are now going to focus specifically on the consumer credit industry.

The $700 billion emergency rescue plan was first developed as a way of keeping the markets liquid by providing emergency funds to prevent the credit market from further shutting down. The money was going to be aimed at financial institutions through buying up toxic assets with the hope that this additional capital would provide them with the sense of security needed to start the business of lending again. Unfortunately, that hasnt quite caught on with the speed that is needed. Around 50 financial institutions have been granted approval (or have been pre-approved) to receive $172 billion in capital resources.

To help speed things up, the US Treasurys $700 billion rescue plan is tilting the tables toward consumers debt. Paulson positioned the need to officially broaden the initial scope of the project to help aid those non-banking institutions that deal directly with consumer credit issues. Credit card companies, student loan providers and auto loans can soon be the beneficiaries of the second stage of this unprecedented Government assistance plan, as investors are no longer partial to these types of loans.

Paulson stated that, "although the financial system has stabilized, both banks and non-banks may well need more capital given their troubled asset holdings, projections for continued high rates of foreclosures and stagnant U.S. and world economic conditions.

His thoughts are that systems dealing with consumer loans need assistance as "Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt."

The hope of this entire strategy is by stabilizing the big lenders, the financial system will no longer be clogged. Ultimately, the country and all its residents will benefit from a trickle-down effect and the reactivation of credit liquidity.

Create a budget . This is the first key to increasing your wealth. If you don't know where your money is going, you can't find areas where you can cut back and save. There are several online tools, as well as software programs that allow you to catalog your spending. Additionally, many banks...