No ‘one-size-fits-all’ recommendation is possible when considering the right amount of debt to assume. But that doesn’t mean there are no good guidelines at all.

Naturally, credit card companies and other lenders are happy to make available as much money as they think their borrowers will repay. They take risks, but those are calculated risks. They look at default rates, current interest rates and carefully review credit history when they make loans. Borrowers can benefit by following some aspects of their strategy.

Before taking out new credit, consider the odds that you will have to default on repayment. Don’t factor in to your decision the possibility of deliberately defaulting or filing bankruptcy. You’ll find the consequences are rarely worth it and that should be reserved as a very last resort.

You can factor in expected increases in income - banks and other business do - but you should be very sure you’re actually going to receive it. A promised raise or hoped for income from a stock sale is far from guaranteed money.

Look at current interest rates and make a prediction about where they are headed, businesses do. That’s a very difficult thing to be confident about, but general trends are not random. Look at bonds, futures and other indicators. If 6% bond option prices are going down, many pros are betting interest rates will rise to above that in the future. These represent the bets of professionals about the future direction of inflation and interest rates.

Look at your own credit history the same way a bank would. Try to see it from their perspective. Would you loan yourself $10,000 at 7% for 48 months? Avoid rationalizing late payments or defaults. You may have had a legitimate reason, or you may not yet have developed the resources (inner and financial) to repay all your debts on time.

Consider your total income and expenses realistically. You may badly want a new car, but can you afford an extra $500 per month without sacrificing essentials while still meeting your current obligations? Be honest with yourself.

No one can decide for you whether it’s worth assuming an ongoing $200 per month credit card payment at 12% in order to have an item you’ve been longing for. You may value having the item today more than you value the extra money it will cost you over what you save by saving for it.

But you should at least think about it. Impulse buying is the most common way credit card users get in over their heads, financially speaking. Project the possibility that if you wait (and saved for, say, a year) you will have both the item and something else you can purchase with the money you would have paid in interest.

Evading the fact, if it is a fact, that you can’t really afford the payments is the surest way to get into financial trouble. That kind of trouble can take months or years to get out of. Think long term, be realistic, and you’ll be able to decide what is the right amount of debt for you.

When analyzing financing options or debt handling issues many people neglect to include the tax implications of one strategy over another. Including tax implications in your scenarios can become very complicated. It’s always handy to have a computer program that will help you. But even without that there are a few simple guidelines to keep in mind.

In the U.S., the biggest tax write-off for many individuals is the interest paid on a property loan. Since they represent large debts, paid over many years, the interest is (for several years) the overwhelming majority of the total monthly payment. As a result, much of that interest paid can offset taxable income.

But there are other tax issues involved with other forms of debt that should be factored into planning.

Taking out a home equity loan used to be primarily for the purpose of making improvements to the property. Many people these days use that money for a much wider variety of goals. A HELOC (Home Equity Line of Credit) can be used to finance just about anything - an auto purchase, repayment of credit card debt… you name it.

One advantage of this type of debt is precisely the tax benefit. Just as with a primary loan, interest on a second mortgage or a HELOC is tax deductible. So, even when the interest rate is the same as a credit card (and they are often lower), the net result can be beneficial.

The only way to know for sure in your circumstances is to do the calculations. Online loan calculators are readily available that will help you do just that. Run through several scenarios to decide the effect in your case.

It’s possible to obtain a loan to pay for large medical costs. Some people pay for such things with a credit card, which is possibly the most expensive way to finance the debt. Sometimes that’s necessary; no ‘one-size-fits-all’ recommendation is possible.

Since much of the interest on such loans, and sometimes the medical expenses themselves, is tax deductible it can be worthwhile to finance the costs that way.

Interest on or amount paid to student loans, too, is tax deductible up to a point. Your circumstances will vary from another’s. Tax filing software is probably your best bet for calculating the pros and cons in your individual case. As you answer the ‘interview questions’ you can put in the amounts and follow the tutorial to determine the impact.

Whatever the example, whenever you are considering assuming debt - especially for large amounts - taking the time to evaluate the tax implications can save you substantial amounts of money. That can easily be worth a couple of extra hours of research, especially since you’ll be able to use that knowledge time and time again.

Few areas of credit are as complicated today as that of student loans. There are many types, with lots of terms, complicated conditions, and fine print. But studying those options is important in order to make the best long-term choice for education funding.

One of the most common options is a Stafford loan. Hundreds of thousands of students have used these as a means of partially financing their education and they do have some positive aspects.

The Stafford loan has no pre-payment penalty - you can pay off any remaining balance any time. There’s no credit check performed, so almost everyone will qualify. There are no payments required while the student is taking courses, provided they maintain at least a half-time status. And, after leaving school there’s a six-month grace period during which no payments are required.

But there are limits on the amount that can be borrowed in one year. Also, though Stafford rates often look attractive relative to ordinary loans, they contain additional charges that can make the cost of borrowing higher. Up to 3% in fees (including a 2% Federal ‘origination fee’ and a 1% Federal default fee) can be applied.

Further, there are plans in which the repayment is made over a 10-year period. That may sound attractive given the relatively low monthly payment it typically entails ($116 per month in the following example). But the amount of interest accumulated on a 7% loan of $10,000 (and most students borrow more) over 10 years is: $3,933. That’s over 39% of the original amount paid in interest. Definitely, not cheap money.

Though it may involve beginning repayment immediately, many parents attempting to help finance their son or daughter’s education will find it worthwhile to investigate other alternatives. Even students should make an effort to look for other routes, including a combination of grants, scholarships, and conventional loans repaid with money earned from part-time work.

Savings plans, of course, are one of the best options to investigate and the sooner they’re started in the child’s life the better. The risk with all such plans is that inflation, financial crises, and other unpredictable elements can cause that investment to be worth very little by the time it is needed.

Investigate options - tax-free municipal bonds, inflation-adjusted hedge funds, and others, for example - that can help offset those effects.

Regrettably, there is no easy way to finance today’s high cost of education. But doing the necessary homework to investigate all options will save all concerned time and headache in the long run.

Both lender and borrower are faced at the outset with a basic decision - to obtain a loan that is either secured or unsecured. But, what does that mean, and what are the pros and cons of each for either party?

A secured loan is one in which the money borrowed is guaranteed to be repaid or some asset will be forfeited. The most common example is a home loan. The borrower agrees to repay on the terms of the contract, and if he or she defaults, the lender can legally claim the home as compensation.

In theory, that means that if you miss a payment on the home loan, the lender has the legal right to foreclose and sell the property. In practice, that never happens. Among other reasons, lenders know that reclaiming a house is a long, unpleasant chore and they would be left with the necessity to sell the home to recoup the money.

No lender is going to do that for such a small misstep as missing a single payment. Even if the borrower lags by several months, at most the lender will typically send a series of firm letters demanding payment before taking any other action. Even in an active seller’s market lenders have many more important things to do and don’t want to undertake the effort of removing a homeowner and selling a house.

Nevertheless, it’s wise to realize that the lender has this right. How important or not that right is can be judged by recognizing that even with an unsecured loan, creditors have the legal right to seize assets like salary, stocks and property. This requires only undertaking a relatively simple and inexpensive legal procedure to declare the borrower in default.

But, legal procedures are only RELATIVELY simple and inexpensive - and lenders will almost always try to work out a repayment option before taking that step.

There are other differences between secured and unsecured loans that borrowers should be aware of. Since the money in an unsecured loan is not, in theory, backed by the right to seize the asset in case of default, the interest rates on them are usually higher.

The lender in that case is taking a larger risk, and they are compensated by charging higher interest. That covers losses from defaults (which are higher on unsecured loans) and is one way to change borrowers incentives. Most people will try much harder to meet a debt that is tied to their home than for an unsecured loan.

So, there are pros and cons for both borrower and lender to obtaining one type of loan versus the other. As a borrower, you may find it necessary to incur a higher rate of interest if you don’t have a home, bonds or other assets to offer as collateral. Or, you may simply want not to put those at risk.

Only you can decide in your particular circumstances whether the advantages outweigh the risks and costs.

There are several interlocking reasons to consider refinancing your mortgage. When rates are low, you can lower your monthly payment and/or the total amount of interest you will pay over the life of the loan. You may also want to take out some equity to finance home improvement projects or pay off other debts.

But as a method of adjusting debt it has some drawbacks that should be considered before making that big step.

One drawback is what was just alluded to: it’s a big step. Refinancing your current mortgage loan involves most of the steps required to take out the loan in the first place. You’ll need current income statements, past tax filings and an array of other documentation. You’ll (usually) be filling out a lot of paperwork, and sometimes paying additional fees.

All that takes time and can cost you a substantial sum of money before the process is complete. You’ll want to be sure to run some realistic calculations before making a final decision. Online calculators to help you do that are readily available.

One reason some consider making the effort, though, is almost always a poor one: to pay off credit card and other high interest debt. There are many ways to offload that debt without going through the pain of refinancing your primary mortgage loan.

If you have reasonable credit and some equity, you can get a second mortgage or a homeowner’s equity line of credit (HELOC). The rate may be slightly higher, but you will find the effort is considerably less. It also protects you in case of financial reverses. Provided you continue to make the primary payments, if you slide for a while on the secondary you are unlikely to be at risk of losing your home.

The second reason is more fundamental. Rather than continuing to seek a way out of debt by borrowing yet more money, you should first make serious efforts to reduce your dependence on borrowing. Some readjustment of current debt may be a good plan - if you can achieve a lower total outstanding debt, a lower interest rate or negotiate relief from some of the payments.

But borrowing more only adds to your long term problem. This should be a last resort, not the first thing you think of as a way out of your debt problem.

Debt consolidation often leads to merely reshuffling your debt, sometimes adding more interest and making your situation worse. But, if it’s coupled with a payment plan that does in fact gradually reduce the burden, while making it possible to meet your obligations, it can be a good plan.

In the end, the only way to know for sure is to objectively examine all your outstanding obligations and research the different plans available. Some combination of debt forgiveness, lowered monthly payment(s) and reduced interest payments is the ideal you should shoot for.

Don’t surrender your home in order to deal with a short term problem that can be fixed by other methods.

Of course, the title is an exaggeration on both sides. Credit cards are neither your salvation nor a destroyer. They are a tool, and how you use that tool is up to you.

It can be used for the sake of convenience, for online shopping and the dozen other uses for which it was designed. Or, it can become a means of increasing your debt to absurd levels and cause you to pay painful amounts of unnecessary interest every month.

Many who let credit card debt get out of control see debt consolidation as the way out. They are often presented with a stack of offers to reduce their credit card debt by consolidating all their debt onto one credit card.

But those offers, though they frequently tout ‘lower interest rates’ should be viewed with a skeptical eye. Those lower interest rates are usually only available to a select few with very good credit ratings. That doesn’t apply to the typical person who is struggling to overcome a history of excessive debt and find a way out.

But, they can offer a way to solve the problem over the long term. You may, in fact, be able to qualify - the only way to be sure is to apply. But even if you’re accepted, there are several key items to keep in mind when considering this solution.

Very rarely will such credit card offers lower the actual amount of principal outstanding. As a result, you have exactly the same amount of debt on the day you acquire the new card. And, over the long term you will actually sometimes pay more.

A lower interest rate can, indeed, be a benefit. But lowering the rate doesn’t always mean lowering the total amount. If you pay 8% on a debt of $10,000 for, say, five years you will pay more than paying 10% on $10,000 for two years.

The reason is the compounding effect of interest. The total amount of interest paid in the first case is $2165.60. The net interest rate overall is 21.656% when calculated as the percentage paid beyond the principal. In the second case, you pay only $1074.80, with a net interest rate of 10.748%.

Remember the 8% vs 10% are the APR in each scenario - the annual percentage rate, this is the rate for a one year period - not the total percentage of interest.

Of course, the upside is that in the case of 8% over five years, you pay only $202.76 per month, in the second case you pay $461.45 per month. Many will find the former payment easier to manage than the latter. And, you may be able to find some middle ground. Calculators available online will help you run through the different scenarios, in order to guide you to choosing the one that’s best for you.

Inflation makes tomorrow’s dollars worth less than today’s. That makes borrowing more attractive to borrowers, but lending less attractive to lenders. In order to compensate, lenders raise interest rates, since (among other things) they too know that the dollars they will be repaid next month are worth less than the ones they loan out today.

So, a vicious cycle is set up. As prices rise, more people (businesses, too) find themselves needing to borrow more if they are to buy the things they want - cars, home improvement, etc. That tends to raise interest rates even further, since there is now more demand for borrowed money. More demand, given a set supply, tends to raise prices. In this case, the price (this is interest paid) is the price of borrowed money.

Since inflation is chiefly caused by governments - whether through high borrowing themselves, or deficit spending, or actual printing of more currency or issuing more credit - there is little an individual can do to change the system. All one can do as a citizen is recognize the causes and advocate sound policies.

But, as a borrower, there is much one can and should do when looking at the situation. After all, governments don’t continually increase inflation - if they did as happened in the late 1970s, for example, interest rates would eventually reach a point where there are loud demands to ‘do something’. When they ‘do something’ it invariably means closing down the spigot, this is reversing or at least slowing the actions listed above.

Those actions have a definite impact on anyone looking to borrow money, just as the inflation did. That deflation may lower rates, encouraging more borrowing, but it also causes dollars borrowed today to be worth less than they would be tomorrow. So you are repaying a loan with dollars that are worth more tomorrow if you held onto them (by saving or investing) than they are today.

So, when you consider borrowing you have to try to make a guess - just as the banks do - about which way inflationary or deflationary pressures are likely to go. That’s a tough job for even professional economists, so how can a laymen be expected to do that with any rationality?

While there’s no sure method, there are some indicators that are available to anyone. It used to be that gold and silver were good indicators, but that is no longer true since the dollar is no longer related to any hard commodity. Still, there are one or two that can be helpful.

Since oil is a very basic commodity that is tied to so much production of other things, as the price of oil rises inflation is likely to heat up some. So look at the price of oil options to see whether prices are expected to be higher or lower in the future.

The price of bond options going up is also an indicator. In this case it suggests that professional money managers are betting interest rates will change sharply over the coming year or two. The relationship is a little complicated and borrowers would do well to consult a specialist.

Just keep in mind that a dollar today is a measure of the cost of goods and services today, just as a dollar tomorrow is a measure of that cost tomorrow. But when borrowing money, you’re buying dollars today to spend today, but will pay them back in the future. How much those dollars are worth when you pay them back is a measure of what that loan will actually cost you.

In the UK there’s a formal name, IVA, for the agreement between a debtor and a creditor to alter debt terms. The U.S. may not employ the name, but the idea is essentially the same. It’s a method for agreeing to settle an outstanding debt, usually one that’s overdue and that the debtor can’t pay.

The UK has a much more formal structure for such agreements, and they often involve Licensed Insolvency Practitioners. The U.S. doesn’t have a recognized profession by that name, but debt counselors, financial advisers, some attorneys and others frequently perform the same role.

The agreement is never ideal for either party but, as in any compromise, it’s better than a total loss on either side. Such agreements involve setting terms for repayment, often with the creditor accepting a lower total amount than the original debt. Sometimes the interest rate is lowered, sometimes it’s not - each agreement is just what the term says, individual.

The advantages to the debtor are fairly obvious. He or she gains relief from any legal action such as garnishment of wages, asset seizure, home foreclosure, etc. There are also psychological benefits, since (presumably) the arrangement involves terms the debtor can actually meet. Once in place, a very unpleasant episode moves into a new phase.

But, the creditor benefits as well. The lender won’t usually receive the total expected amount. But such agreements can lengthen the terms of the original loan, and (even at a lower rate of interest) can bring in more money in the long run. More often, the debtor agrees to repay some percentage of the original amount. How much varies, but figures as low as 50% are not unknown and 75% is common.

That doesn’t sound like a great deal for a creditor, but if the debtor demonstrates that the amount is really all he or she can afford - and the alternative is the debtor filing bankruptcy or the creditor incurring legal costs to sue - it can be seen as the best available option for everyone.

One of the big advantages to a debtor is not just a lower amount of debt to repay, or even a lowered monthly payment, but simply what doesn’t happen. Avoiding bankruptcy is a major benefit. Bankruptcy, while some may see it as an easy way out, ruins your credit for several years.

After filing bankruptcy, it can be nearly impossible to obtain a home loan for 10 years. Auto loans will be difficult to get at anything near a favorable rate. Credit cards - of any kind but those with ruinous interest rates or that are just disguised debit cards - will be a memory. In today’s world that means restricted online shopping, difficulty making airline reservations and a host of other inconveniences.

In the UK, an IVA is a formal arrangement made through the courts. In the U.S. it can be nothing more than a signed letter containing the terms of the agreement. But it should be, at minimum, put in writing by the creditor. That gives the debtor a legally binding agreement that he or she can use as a reference and for legal protection.

Debt is closely tied to savings - the more you do the first, the less you have left over for the latter. Conversely, the more savings you have, the less you (usually) need or want to borrow. Since you’re paying out interest by borrowing, and (in some cases) simultaneously not getting interest by saving instead, you get a double financial whammy.

For example, instead of borrowing money by using your credit card, you could save that same amount every month until you had enough to buy the item you used the credit card to purchase. Only you can decide whether having the item today is worth paying the extra amount of money it cost in interest to own it.

But when it goes beyond individual items, into the realm of saving for retirement, you have a bigger issue to consider. An IRA (Individual Retirement Account) allows you to set aside money for your later years. That has multiple benefits and a few risks.

When you save that money, obviously, you are not spending it. You accumulate interest on that money saved, which compounds over time. See one of the many online calculators to get a feel for how compounding can help, for example, turn a few thousand into many thousands over 30 years. You also get a tax benefit, since by design any money put into the account represents a tax deduction.

Instead, you are taxed on that money when you begin to use it many years later. The theory is that you will then be at a much lower tax rate and therefore pay a much smaller amount than you would when it was first earned. Sometimes that theory is true in practice, and in some smaller number of cases it’s not. You will need to make some predictions for your own case, but for most people it’s true.

There are more variations today on basic IRAs than there were 20 years ago when the idea first became a reality. But the basics remain true. You can still put up to $2,000 per year tax free into the account.

One variation, for example, is the popular Roth IRA. Federal regulations allow tax-free withdrawals as long as the contributions remain in the account for five years and you are at least 59?, or it’s used for a first-time home purchase.

Another common savings instrument is the 401k, named after a provision in the 1978 Internal Revenue Code. These allow employers to put money that is tax-deferred into an account on the employees behalf. You pay no income tax on the money until it is withdrawn.

Those who have difficulty summoning the willpower to save often find these helpful, since it’s allocated before you see your paycheck. Here again there are numerous variations around today.

These and other savings methods can form part of a total financial plan that involves borrowing and investment in many forms. The more options you learn about, the better plan you can develop to maximize your hard earned dollars.

The first step to handling any problem, and excessive debt is no exception, is to focus on facts. Here, that means finding out how much you actually owe and what the monthly payments and interest costs.

It’s surprising, though maybe it shouldn’t be, how many people that are troubled by debt problems, don’t actually know how much monthly interest they’re paying. Part of the problem may be that they really don’t want to know. Considering how much it sometimes is, one can hardly blame them.

But the first step back to financial health is a good diagnosis. If you’re paying $200 per month in interest charges alone on a monthly net income, say, of $4,000, then you are paying 5% PER MONTH of your income for essentially nothing. It’s not entirely nothing, since you are enjoying the things you bought early. You would have had to save to purchase them outright. But is that worth 5% of your income?

When that $200 a month (and for many, it’s much more) becomes the total you can pay each month, you have reached a point where you will never pay off the debt. If all the money is going to interest none is going to principal. That may be an extreme case, but consider how much of the monthly payment in your circumstances goes for interest versus repayment of principal.

Suppose it’s 90% interest, 10% principal. That’s approximately the case for the average home loan for the first several years. You can use an online calculator to see how long that will take in your situation.

Suppose, for example, you owe $10,000 at 7%. You could pay only $116 per month, but it would take you 10 years to pay it off. The interest would cost you $3,933 - almost 40% of the total amount.

Now that you’ve seen your situation, you need to take two further steps. Develop a budget that will allow you to make payments as large as you can handle to get the bills paid off. You could use the ’snowball method’ and pay off the smallest one first. Then apply what you were paying to the smallest to the next smallest (now the smallest), until you’ve reached the end.

Alternatively you could pay down the largest bill. That would save you the most in interest charges, but it’s hard for many people to stick to it, when they see such slow progress.

Now, for the hardest - and most important - step (which should be carried out simultaneously with the first): stop borrowing. You should not allow yourself to incur any further debt until you have paid the first down to a reasonable level. That level is zero for credit card junkies. For others, it may be in the 5% range. For some with good willpower and are willing to eat the overhead, 20% is the maximum.

Facing reality and making a commitment to long-term change are the two hardest things for anyone who has entered financially turbulent waters to do. But they are the bare minimum required, if you want to recover your financial health and independence.