7 roads to financial ruin

By Liz Pulliam Weston

Leo Tolstoy famously wrote in "Anna Karenina," a novel that culminates in an equally famous suicide, that "All happy families are alike; each unhappy family is unhappy in its own way."

When families are unhappy because of their finances, however, they've typically chosen one of a relatively small number of paths to get there.

That became abundantly clear when MSN Money invited readers to post their debt and credit questions to the Your Money message board as part of "Get Out of Debt Day." Although the posts ranged all over the financial map, those in the most serious trouble often committed one or more of the following acts of financial suicide:

Carrying credit card debt

Carrying credit card balances is not the norm in America, as I wrote in "The truth about credit card debt." More than half of U.S. households have no credit card debt, and only 7.2% carried balances of $10,000 or more, according to the latest Federal Reserve survey.

Yet four- and five-figure credit card debts were scarily common among the Get Out of Debt Day posters. Many of those who had significant credit card debt were already behind on payments or dealing with collectors. Even those who were paying on time had suffered the consequences of bloated debt.

Poster Bobbie Pittsburg said he and his wife have $50,000 in credit card debt after a two-year stint of unemployment while putting four kids through college. Their high debt loads and previous trouble making payments were playing havoc with their credit scores and their plans to downsize to another home.

In hindsight, Bobbie and his family didn't cut back soon enough or hard enough. The kids should have been shouldering more of the costs of their education, and the parents should have been more cautious about using credit cards as a crutch.

Carrying any credit card debt is a big, red flag that you're living beyond your means. Paying off that debt should be a priority. If you're not sure how to come up with the money, check out MSN Money's Learn to Budget Decision Center for ideas.

Letting fixed-living costs swell

If you've cut your spending to the bone and are still struggling, maybe you need to take a closer look at the bones -- that is, your basic living expenses.

Poster Alee, for example, has a mortgage payment of just $550 a month. But combine that with her monthly utility bill of $300, and she's already spent 60% of her $1,400 a month in take-home pay -- and that's before paying for groceries, gas and other necessities. Even if she didn't have $12,000 in credit card debt to finance, Alee's spending would be out of balance, according to Elizabeth Warren, a Harvard University bankruptcy expert and co-author of the personal finance book, "All Your Worth."

Warren recommends people's "must have" expenses total no more than 50% of their after-tax income. (Your after-tax income is basically your take-home pay, with any non-tax deductions like 401(k) contributions and health insurance premiums added back in.)

"Must haves" typically include:

• Mortgage or rent
• Utilities (including phone and television)
• Transportation (gas, car payment, car insurance)
• Other insurance (life, health, property, disability)
• Groceries
• Child care
• Minimum loan payments
• Child support or other court-mandated payments

Continued: Using retirement savings to pay off debt

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