by Senile M. Ethane

Created on: June 23, 2009   Last Updated: June 24, 2009

You did all the right things. You had a budget and paid all your bills. Then the bank increased the payment required on your credit card balance. Pay-as-you-go won't work anymore. Now what? You still have to eat.

This is happening to to more and more people these days. Good people who know how much income is coming in and allocate it in such a way that all their bills get paid, are getting slammed. It might be an increase in the mortgage payment due to a rate increase or a change in the terms on a credit card. Or perhaps an unexpected expense sends things into a tizzy. But something happens so that the numbers just don't add up anymore.

If you are a member of the pay-as-you-go club facing an aparently impossible financial situation, perhaps I can offer a different way of looking at things that just might help you find a way out - without destroying your credit rating.

In a nutshell, you currently are probably trying to manage spending and cash flow as if they were the same thing. But by managing each as a separate thing, you may be able to actually use credit in order to reduce your total debt and still maintain a good credit rating. Here's how it works.

Let's say that John and Mary deposit $3000 per month in their checking account from their paychecks. $1200 is paid on their rent. $300 goes for the car payment. More goes out to cover insurance, utilities, cable access and other items that are more-or-less the same every month. And a certain amount is put aside (in an envelope or savings account) to cover the erratic expenses like fall wardrobe for school-age kids, gifts, new apliances when they wear out or repairs when needed.

They also have a $4000 balance on a credit card thay they are trying to pay off. They vowed to never use it again. The bank has been charging 15% interest (about $50 per month) and billing them for 3% of the total balance each month resulting in a current payment required of of $120. All of these items have been trimmed as much as possible already

When all is said and done, they have about $300 left over which they use to buy about $75 of groceries per week.

OK. These numbers might look silly compared to your personal situation. But, bear with me. We only need to look at a few of these items for me to make my point.

The crisis comes when the credit card company changes its terms and increases the interest rate to 20% ($67 per month of interest) and now requires a payment of 5% of the balance each month ($200). That is a payment increase of

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