Post Holiday Debt Reduction Strategies

For many people, the good feelings experienced during the holidays begin to wane around mid- January when the post holiday bills begin pouring in.  Focus inevitably shifts to developing and implementing effective debt-reduction strategies.

Some individuals began the 2010 holiday season still owing on their charge cards from 2009.  If you are one of those whose new holiday charges were piled on top of old debt, an appropriate New Year’s resolution might be to reduce outstanding bills in order to more fully enjoy 2011 and be debt-free by the time the holiday season comes around again.

Post holiday debt-reduction strategies:

* Change spending habits

Determine to pay cash for future purchases. Cut up or put away charge cards. The best way to reduce debt is to discontinue adding to it. Establish a budget and stick to it. Shop with a list and don’t succumb to impulse buying. Spend only on needs, as opposed to “wants.” Commit to a frugal lifestyle until debt is reduced considerably, or eliminated completely.

* Change paying habits

Paying only the minimum monthly payment required on charge accounts and credit cards will keep one financially strapped indefinitely. The interest accrued will barely offset payments, increasing balances rather than decreasing them. List creditors with those charging the highest interest rates first. Pay the largest amount possible on the card charging the most interest and the minimum payment on the rest. As soon as that card is paid off, apply those monies to the card with the next highest interest rate. Continue on in that manner until all accounts are paid to zero. As soon as each credit card reaches zero, put it away, or cut it up, to avoid using again.

Some people try to eliminate debt by doing the reverse order; that is, paying off the smallest balance and working their way until only a couple of large balances remain. This method is futile, for the interest accrued on the larger balances will offset any progress.

* Apply “Found money” to debt

“Found money” refers to amounts potentially garnered in any way other than an ordinary paycheck. Avoid the mindset that there is such a thing as “found money.” If you don’t go out to lunch, or don’t splurge on a fancy Star Bucks beverage, apply that savings to your debt. Go through your possessions and sell on e-bay, or in a garage sale, gently used items that have outlived their usefulness and are simply taking up space. Apply all monies made to outstanding debt. File income taxes early, applying any refunds to outstanding debt. Tax refunds are an effective way to reduce debt in one large chunk. Do not be misguided into thinking that using your tax refund for an expensive purchase of a “wanted” unnecessary item is okay because it is “found money.” Postpone annual vacation plans, putting the money you would have spent toward your debt-reduction efforts.

* Up your earnings

While you are on your debt reduction “diet,” consider temporarily taking on a part-time job. Salary earned can be applied to outstanding debt. Use any bonuses earned on your regular job in the same fashion.

* Consolidate

If your credit is intact, work with your banker, or a financial advisor, to consolidate your debts into one low-interest loan with one manageable monthly payment.

If your credit has been compromised by your debt load, seek the advice of a reputable credit counseling service to reduce your debt and get your credit rating back on track. An astute credit counselor might be able to negotiate with credit card companies to lower payments or interest rates. The fee you pay for this help with your debt  might be offset by the ensuing peace of mind.

It is in your best financial interest to choose the wisest debt-reduction strategies for your personal situation, potentially enjoying a vastly-improved life by achieving financial freedom and peace of mind through debt-reduction.