Financial advisor offers tips to help reduce debt load

Nevada, Mo. -- As the holidays come to a close, this time of year often brings a family's financial picture into clarity. The end of the year looms and realization strikes that the family budget, if there is one, is in tatters. Debts have piled up until they threaten to overwhelm you. What to do?

Financial advisors say the first thing is to remain calm. Don't panic. You didn't get into this situation overnight and you won't solve it overnight. Take the time to plan before taking any action.

Financial planners may disagree about exactly how to handle certain situations, but one thing they all agree on: planning is essential. They often quote the old adage that failing to plan is planning to fail.

Credit card debt is pervasive, there are humorous stories about companies issuing credit cards to family pets. Since they are all around credit cards are easy to abuse.

Greg Hoffman, owner of Hoffman Financial Services, said that when people find in debt the first priority is to stop making more debt.

"The first thing to do is get the card out of reach somehow," Hoffman said. "I've heard the stories about someone freezing their card in a pan of water to make it more difficult to use. I don't know that I'd suggest that but it is important to stop increasing your debt."

The next step Hoffman suggests is also important. Pay more than the minimum payment due. If someone has an account that has a $2,000 balance and only pays the minimum payment it could take 30 years and more than $5,000 in interest to eliminate the debt.

"Card companies love people who only pay the minimum," Hoffman said. "It's a big profit center for the company."

Consolidating payments can help you by reducing the number of accounts you have, but be careful -- watch where you get a consolidation loan from or you could be facing higher interest than you now have. Hoffman suggests seeking out a favorable rate.

"Shop around and find the lowest rate," Hoffman said. "Having only one payment is easier to keep track of."

Hoffman said punctual payments are very important.

"Do not ever be late. Some companies jack the rate to the maximum if you are, which may be as high as 25 percent," Hoffman said.

Once you have managed to get out of debt, stay out.

"Once you get it paid down, keep it down," Hoffman said. "It's easy to get back into debt."

Hoffman said that not all debt is equal, there were times when debt could be a good thing.

"There's good debt and bad debt," Hoffman said. "Capital items like houses and cars are good debt. Not very many people would have the money to buy a house if it weren't for a loan -- a car either, for that matter. Bad debt is for items that can be consumed or used up. Televisions, meals, things like that."

Although many people feel credit cards are too easy to obtain and use, Hoffman says it's up to the consumer as to how credit cards get used.

"Credit cards are a tool, just like any other," Hoffman said. "Like other tools they can be useful or destructive -- it depends on how they are used."