New Year, new debt management plan

Friday - 12/31/2010, 10:35am EST

Freddie H. Cook, CPA and personal financial specialist

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January 3, 2011 -- The New Year is the perfect time to think about a new debt management strategy. Hosts Bob Leins and Tammy Flanagan were joined by Freddie H. Cook, a CPA and financial specialist, to discuss how you can get your finances in order.

"We have to look at if the things we purchase are absolutely necessary," said Cook, who has also worked for various federal agencies for 26 years.

Cook recommends creating a financial plan with the understanding that not paying off debt will have a "tremendous inpact" on your future finances.

Sticking to a budget requires getting over an "I deserve this" mentality, Cook said.

"What happens to most people, for some reason, they feel that writing things down is really not for them. I think what they tend to think is, 'Well, I'm doing well, so I should be able to spend whatever I think I can,'"Cook said.

The first step in creating a financial plan is evaluating your budget and cash flow, which should be positive, he said.

Some online tools can help you evaluate your financial situation. www.tsp.gov can help with retirement planning, and www.myfico.com offers free credit scores.

Some services cost money to find out your score, but Cook said the free credit scores are fine unless you want a "top of the line" service. Since many companies that offer free credit scores only offer the service once a year, Cook suggested getting the free service throughout the year with different companies.

Cook said one option not pursued by people is talking to their creditors.

But he said, "By contacting the creditors, you might find they will be able to work with you." Creditors could offer a payment plan or even reduce the interest rate, Cook said.

Once you have a plan in place, it's important to stay disciplined. With investment, such as in your Thrift Savings Plan, you might be temped to "jump in when the market is up and jump out when the market is down," Cook said, referring to investing in riskier TSP funds.

"Once you decide you're going to have that strategy, you have to continue with that strategy whether the market is up or down," Cook said.