A warning sign: "kiting" your debt

Megan McArdle, the business and economics editor for The Atlantic, offers some wise, if unpleasant, advice on your money:

In general, the point at which you're kiting debt--using home equity or the 401(k) to pay off credit cards or bad car loans--is the point at which you are in serious financial trouble.  While transforming the debt to lower-interest rate forms can seem like salvation, it's not the answer.  For one thing, the lower interest rates come with greater risk--of losing the house or your retirement savings, rather than your credit rating.  For another, it won't work unless you get serious about controlling your money.  I've watched colleagues do it (not at the Atlantic), and invariably after they refinanced the house, the credit card debt started to creep up again.  Many financial counselors and personal finance gurus say the same thing.

At some point, she says, you have to bite the bullet.

Bankruptcy may be the only answer.  But even before you contact a bankruptcy attorney, you need to sit down and get serious about your money.  Get out your bank statements and look at all your expenses, including the cash withdrawals.  Look at your fixed costs, and see how much that leaves you for variable expenses like food.  You may simply be overspending on crap, in which case I am a big fan of the cash budget, and have been since my early days as a broke young journalist with monstrous student loan payments.  Cash provides automatic discipline; it's hard to rationalize overspending when you can see just how little is left for the rest of the month.

I did that recently, and although it wasn't pleasant there was some relief in seeing the actual numbers. One thing I discovered was that I could buy electricity through a lower-cost provider. I'm not sure how it works, but it does. I also discovered a heavily tax-subsidized program through which some people came out and fixed a lot of energy leaks.