Debt Reduction Strategies for 2003

The holiday gifts have been opened. The tree has come down and the decorations put back in storage. Now all that's left of the holiday season are those bills that just won't go away.

With consumer debt exceeding $7.5 trillion, it's no wonder that debt reduction would be a popular new year's resolution. During a recent telephone poll about New Year's Resolutions, 28 percent of Americans said paying off or paying down their debt was the most important thing they could do this year.

"Paying off debt is a great goal, but it's sure hard to do," says Kim Womack, director of education for Consumer Credit Counseling Service of South Texas. "You'll never get those debts wiped out if you can't pay more each month or if you continue to charge. For those who owe a lot of money, they'll probably see little progress without taking charge of their spending."

For consumers who want to get out of debt, Womack offers the following suggestions:

• Pay down debt using the "power payment" method: List debts in order from smallest to largest balance. Pay extra on smallest balance each month until paid off. Then apply those dollars to next on list and so on. Ignore interest rates, concentrating only on balances and build upon payments as you eliminate debts on your list.

• Analyze all spending. Create a budget, then record each cash transaction daily for a month. Compare all monthly expenses for six months to see patterns, fluctuations. Money management software programs can also help.

• Reduce the number of open credit accounts. Close accounts as they are paid off, trim the number of credit cards you have to five or less. If the cards are not used often or have higher interest rates, close them. Having fewer accounts at your disposal reduces chances for random, unplanned purchases. If you owe a lot of money, stop charging immediately. Challenge yourself to pay cash for all daily and weekly expenses like meals, gasoline, etc. Stop relying on credit to pay for these monthly costs.

• Build a savings account for "emergencies." Start by anticipating normal annual expenses like back-to-school costs, holidays, vehicle registrations, taxes, birthday, vacations, and maintenance costs. Save one-twelfth of this annual figure monthly. Anticipate vehicle and home repairs before they reach a crisis point.

"Achieving your goal of being debt-free requires making some pretty substantial lifestyle changes. You need to learn to be a less impulsive buyer and more dedicated saver," says Womack. "Change isn't always easy and may not be a lot of fun, but necessary." She adds that people should be patient and realistic in their goals. "They didn't get in this situation overnight, so it'll take longer than a year or two to pay it all off."

Womack adds that many consumers should seek professional help. If debt continues to rise or money simply can't be saved despite your best efforts, get assistance from a qualified and inexpensive source like CCCS of South Texas. CCCS offers free counseling and money management tools. CCCS is a member of the National Foundation for Credit Counseling, and is an accredited United Way agency.

To schedule an appointment with a CCCS counselor or to request educational materials, visit their web site at www.cccsstx.org or call 854-4357 or 800-333-4357.