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Is Getting Out of DebtOne of Your Resolutions This Year?

By Sara Gilbert

With the new year upon us this might be a great time to figure out how to worry less about your finances.  Maybe one of your resolutions this year is to make a plan to pay off your credit card or other debts. According to the Federal Reserve Bank of Boston, 56% of consumers carried an unpaid credit card balance in the last twelve months.  Becoming debt free is possible with a realistic plan.

You may have used your credit cards in the past to make ends meet, to go on vacation, to cover an emergency, to buy furniture and appliances, or for many other wants or needs. With the regulatory changes that came with the Card Act a couple of years ago you now are given an estimate of the length of time to repay the balance on your credit card statements. If paying off your account with the minimum payment for the next 33 years is a frightening thought you are not alone. Getting out of debt takes some planning and hard work but it can reduce a significant amount of stress in your life and help you start to reach more of your long term life and financial goals. Paying off debts requires a realistic picture of your current finances so that you can avoid using credit as you start 2012 and actually have a workable plan in place to pay your debts off as you move forward.  

Take an accounting of your current income and expenses. What is your take home pay each month and how much are your monthly expenses for housing utilities, food, debt payments and the many other things you spend money on each month? GreenPath has a budget calculator online at http://www.greenpath.com/media/greenpathcalc/GPHomeBudget.html that can help you do these calculations.  The goal is to have enough money coming in to meet all of your essential expenses. Once those essential expenses are met, how much do you have left to pay debts or reach other goals? 

When considering how to resolve financial problems to reduce debt there are several areas to look at for solutions to reducing your dependence on debt. Can you increase your income so that you have more money to pay to your debts each month? Maybe you can find a part time job? Do you have a raise coming in the next several months or can you get some overtime? Do you have a particular hobby that will actually also turn into a money maker to bring in some extra cash? 

After considering your income it is time to take a serious look at your expenses so that you can free up some money to be able to pay more to your debts. What can you reduce? Do you know how much you spend for your flexible spending areas such as eating out, groceries, or gasoline? If you are not sure what you spend in these areas tracking your expenses for one to three months is an excellent way to get a handle on where your money is going so you can make decisions to cut back as possible. Saving receipts is an easy way to see what you spend each month for budget items such as groceries or gasoline. Get together with your family and make some decisions about some ways to reduce your expenses at your house. 

Finally, if you are still looking for ways to align your expenses within your income can you think of ways to pay off a debt quickly to get out from under the payment? Do you have items to sell that you no longer use? Use the cash you make from the sale to pay off a debt, or let your tax refund help you if you are expecting one to pay off a debt for a quick boost in your debt repayment efforts.

Don’t let discouragement keep you from making some changes. GreenPath has many clients successfully repaying debts through a repayment plan called The Debt Management Program. This repayment plan helps our clients negotiate a plan to get all debts paid in full in 5 years or less. The program offers potential reductions in interest rates, monthly payment amounts, and the stopping of late and over the limit fees so that the bulk of the money you pay to your debts each month actually goes to the debt owed and not to interest and fees. Clients on this program experience less stress because they know they are making progress every month toward becoming debt free. GreenPath certified counselors can provide a free assessment to see the different options you might have to become debt free in 2012 and beyond. 

Sara Gilbert is Group Manager for the Colorado branch of GreenPath Debt Solutions; a member of the National Foundation for Credit Counseling.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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