“Just like weight, debt tends to accumulate over the holiday season, and it doesn’t go away without a plan and persistent effort,” warns Jamie Becker, the LHSFNA’s Health Promotion Division Associate Director.

Typically, January and February are the busiest months for credit counseling services. With the added impact of the housing market skid and a looming recession, this year may be worse than usual./p>

If so, you probably feel the pressure. These are common signs of excessive debt:

  • An increasing amount of your income is going to debt payments.
  • ou pay only the minimum on loans and credit cards.
  • You have reached your limit on credit cards.
  • You use credit cards to pay for things that you used to buy with cash.
  • Debt prevents you from saving or making contributions to your retirement account.
  • You experience worry, anxiety or sleeplessness over debt problems.
  • You’ve been in debt before and got out of it, but you are burdened by debt again.

“While the pressure of debt can feel overwhelming,” says Becker, “systematically attacking the problem can be empowering and will, eventually, eliminate the pressure.”

Plan of Action

First things first. Stop charging on your credit cards and make sure you keep up on your mortgage or rent. Use cash, checks and your debit card to pay for everyday expenses and normal bills.

Second, make a budget. You need to know your monthly cash in (after tax income) and the amount of your regular and necessary monthly expenses (rent/mortgage, food, utilities, transportation, etc.). The difference between these numbers is your monthly discretionary income – the amount that you can spend as you please.

Third, set aside the bulk of your discretionary income to pay off your debts. Consider adding to this amount by selling things of value that you do not need (an additional car, for instance).

Credit Card Action Plan

Once you know the amount of discretionary income that you can apply to your credit card debt, develop a specific plan. Make a list of the balances due and interest rates on all your cards.

Do not be confused by card companies’ willingness to accept a minimum balance payment. At minimum payment rates, you will be in debt for years while paying large amounts of interest to carry the debt. For instance, if you have $1000 in high interest debt from the holidays and pay only the minimum payment each month, you may pay as much as $400 in interest for the year – and you’ll still be in debt next winter. To get out of debt as fast as possible and minimize unnecessary interest payments, you must regularly pay more than the card company’s minimum requirement.

If you have multiple credit cards with outstanding balances, consider using the one with the lowest interest rate to pay off those with higher rates. However, be sure that the low rate is not a short-term offer.

Maximize savings by “snowballing” payments. Make the minimum payment on all your other cards, and apply the rest of your allotted discretionary income to the highest interest rate card. Once you’ve paid off that card, move to the next highest rate card. If two cards have the same rate, pay the one with the larger balance first.

The worst thing you can do is ignore your credit card bills. Even if you cannot make a payment, contact the company to see if you can work out an acceptable payment plan. Sometimes, you can negotiate a lower interest rate.

Next Time Around

“Once you pay off your debts,” Becker suggests, “turn your debt payment habit into a strategic advantage. Don’t go back to spending all your discretionary income. Instead, establish a budget, set aside the monthly debt payment for savings and continue living within your adjusted means.”

With a budget and growing savings program, you’ll be ready for next year’s holidays and any emergency that confronts you in the meantime.

[Steve Clark]