This is the fifth post in a multi-part series on how to manage your finances so you can build up your savings, have a safety net, and still live comfortably today without having to live paycheck to paycheck. Click here for part 4, which discusses a strategy for independently investing your money in the stock market.

As a generation, we have a problem. We’re getting paid less to work more. We’re paying more for college. We’re paying more for housing. Our salaries aren’t going anywhere. When you compare our generation to the baby boomers, it seems like we got a really bad deal.

But we’re also spending, a lot. And we’re spending on things that we don’t need – plasma TVs, luxury bags, designer clothes, expensive cars. Some of us are living the high life, but we may be doing so at the expense of our future selves.

Why we get into debt

Sometimes, we have to borrow money just to get ahead. School loans are almost a necessity for many of us, especially with the skyrocketing cost of a college education. In fact, according to a 2008 report from the American Savings Education Council and the AARP, 32% of all “Generation Y” members have student loan debt. My guess is, it’s probably higher than that. Necessary debts, such as those that come with student loans, are “self-investment” debts. We need them – fortunately, these debts often come with much more favorable terms for the borrower than other types of debts, the bad debts – the “lifestyle debts.”

“Lifestyle debts” are the high-interest debts that can generally be avoided, yet, for some reason, many of us choose not to worry about them. The most common of these debts is credit card debt. According to the same report I mentioned above, it’s estimated that 57% of young professionals have some sort of credit card debt. Again, my guess is that it’s probably more.

Sometimes, this is valid debt. Credit cards can be used to pay off anything these days, and a credit card could be used to pay off a true financial necessity. But more often than not, that card is probably being used for expensive lattes, electronics, clothes, cars, and other luxuries.

Regardless of the type of debt you have, it’s important to come up with a plan to get out of it.

Planning to get out of debt

If you’re saddled with thousands of dollars of debt, chances are, you may not know how to start paying it off. The first step is to figure out what your actual debts are. Open up Excel, make a list of every single debt you owe, the interest rates, and the total amounts for each. Now, take a step back and just absorb what you wrote. Is it a lot, or is it manageable? Is it mostly good debt (self-investment) or bad debt (lifestyle debt)? Take it all in.

Now, try to figure out if you can stop the bleeding.

Is the majority of debt lifestyle debt? Are you spending too much on things you don’t need? If so, make a commitment to stop right now. If you have too much credit card debt, you may want to cut up your credit cards and use debit cards instead. If you’re making payments on a luxurious car, you may want to think about trading it in for something a little less expensive. Are you paying too much on rent? Move back in with your parents. Do you just need more money? Get a part-time job.

If the majority of your debt is lifestyle debt, you’re going to need to make a few hard choices to change your lifestyle. It’s not easy, but trust me, living at home now is a lot more tolerable than living at home when you’re 50 while paying $10,000 a month just in interest.

Now, lets assume you’ve been able to take care of your lifestyle, but you’re still loaded up with debt. What do you do?

Read ahead: Your plan to pay off your debt »

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