The new year and tax season typically can bring a bevy of tips to better one’s portfolio and savings position. But for those with lesser means, debt or tighter situations, some of this advice may not be entirely applicable.

To help provide some direction and suggestions for people who carry some debt and are looking to improve their financial positions, the Camera connected with Greg Ostrosky, a financial counselor for GreenPath Inc.’s Denver operations.

GreenPath Inc. is a nonprofit credit counseling organization with an office in Broomfield, is a member agency of the National Foundation for Credit Counseling. GreenPath’s services that include a free financial assessment, debt management program, mortgage counseling and mortgage document preparation.

“Helping our clients build an accurate monthly budget is a key part of the assessment. By discussing and understanding the client’s situation and monthly budget, we are then able to discuss options or programs that may be available for each client,” said Ostrosky, a financial counselor for GreenPath’s Denver operations. “These options can vary and are typically centered around ways to help the client address concerns such as credit card debts, collection accounts, mortgage issues, medical bills and student loans.”

The Camera conducted an e-mail interview with Ostrosky last week. The following has been edited for length and content:

1.) Every situation is different, but what are some initial steps someone could make in improving their financial health, increasing savings and eliminating debt?

The first step is to create and commit to a monthly budget. An accurate budget will give a clear picture of the current financial situation, and help one to see where they stand today. Knowing what the monthly bottom line is will be the key here. If there is money left over after all the bills and expenses are paid, make a conscious decision about how to divide that surplus between making extra payments to pay down debt or putting it into savings. Exactly how much should go to each will depend on personal goals and many other factors.

If there is no money left over at the end of the month, examine the budget more carefully to determine which expenses can be reduced or eliminated in order to balance the budget. Prioritizing expenses can be very helpful when trying to eliminate a monthly deficit. Housing, utilities, car payments, food and other basic living expenses have to take top priority. From there, each person must realistically determine what expenses are most important to him.

2.) What are the implications of actions such as debt consolidation, contacting the credit card company’s hardship department and taking offers to transfer balances to another card?

Debt consolidation comes in many different forms, with many different implications. As banks have tightened lending policies, consolidation loans have become much less common and more difficult to qualify for. Using a loan to payoff credit cards isn’t really paying off debt anyway though, it’s just transferring it to a new account. Many people who have gone this route in the past have actually found that before too long, they are paying on a consolidation loan and have charged their credit cards back up, and now have twice as much debt to deal with. The same goes for balance transfers.

Contacting the credit card company may result in short- or long-term assistance. Short term programs may last three to 12 months and provide a lower payment or interest rate. This is not a long-term fix though, as many find themselves right back where they started when the program ends. Long-term programs on the other hand, whether through the credit card company or an agency like GreenPath, are designed to pay the debt off entirely. Again, lower payments and interest rates are a key factor.

Over the last several years, there has been a trend that credit card companies are offering fewer programs directly to consumers, instead preferring to refer clients directly to agencies such as GreenPath. Part of this is because they have seen that programs like ours are often more successful in helping people pay off their debt. With our program, all of the cards are addressed, ensuring all creditors are treated fairly and thus are willing to give concessions, and the client has additional financial support and guidance for the duration of the program. Whether working directly with the credit card company or with GreenPath, keep in mind that the credit cards will have to be closed in order to get lower interest rates and payments.

While this may initially lower certain individuals’ credit scores a bit, most people who are struggling with credit card debt are already facing a negative impact due to the sheer amount of debt they carry and the high percentage of their credit limit that they are utilizing. Successful completion of our program typically helps increase the credit score because it makes it easier to keep up with payments and, most importantly, helps the client become debt free.

3.) What are some strategies that can be implemented during tax season?

Tax refunds can be used in several productive ways. Putting some or all of the refund into savings can be a great way to create or boost an emergency fund. Having an emergency fund is important because it provides additional financial stability. In the event of an unexpected expense, having this savings to fall back on may help prevent late payments and the negative credit impact that comes with it. It could also help to avoid incurring more debt in the future.

Paying off an auto loan that has a low enough balance is another option that can boost the credit score and free up room in the monthly budget.

Paying down or paying off credit cards is another option. Just be careful not to charge the cards back up again. If there is no emergency fund, charging the cards back up is likely.

4.) How much of a greater hardship is student loan debt becoming for individuals?

Student loan debt has been an issue for several years now. Individuals with federal student loans typically fare better than those with private loans in the event of hardship. Federal servicers typically have many tools and options available, while private lenders tend to be much more strict.

Student loan debt is suspected by many to be the next big bubble that our country will have to deal with. With the housing bubble, banks lent money freely and as a result, housing prices soared. With student loans, the government is lending freely, and colleges are taking advantage of this by charging more and more for tuition.

GreenPath and several other agencies have joined together to form the Student Loan Alliance, a network designed to help address student loan issues. As the student loan situation progresses, the SLA is hoping to position itself to advocate for student borrowers.

5.) Can “spending fasts” and “spending diets” be successful avenues to reducing debt?

Reducing spending will naturally free up funds that can instead go towards paying down debt. Unfortunately, “diet” and “budget” have taken on many of the same negative connotations. A diet is what you eat, and a budget is where your money goes. Everyone needs to eat and everyone should know where their money is going. Making sure you have a reasonable diet will help make you physically healthy, while a reasonable budget will help make you financially healthy. They key for both is to have a long-term view and develop good habits. If the focus is only short-term, the debt or the weight will come back.

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