Most of us are looking for tips to reduce debt. It seems to be a recurring theme in our lives. Maybe you can “afford” your debt but just want to be free of the burdensome responsibility. Or, maybe your budget has become so tight that you hardly have room to breathe. Whatever the reason, we all dream of being debt free.
According to many financial experts, the key is to avoid making drastic changes all at once (unless, of course, it is absolutely necessary to prevent bankruptcy or foreclosure). Statistics show that taking a much simpler route – often marked by baby steps – will increase your chance of success. Yes, it may be a long and plodding road, but you are more likely to stick to it. Extreme changes are too difficult to maintain and, more often than not, you will find yourself right back where you started.
If your finances are in serious trouble, then you may need to consider more drastic measures. But, if you are simply looking for ways to reduce debt and enjoy financial freedom, then these steps can help put you on the right track.
Steps to Get Out of Debt
1. Stop Going into Debt. This seems obvious, but sometimes we get into such a habit of “robbing Peter to pay Paul” that it’s hard to break the cycle. Adding new debts may relieve the pressure temporarily, but eventually it will catch up with you. The first step to reducing debt is to determine that you will not get any more credit cards, loans, or lines of credit. Adopt a cash only philosophy!
2. Write Down Your Goals. Define your financial goals, write them down, and re-read them often. Sometimes we get off track because we aren’t exactly sure where we are going.
3. Make A Budget. It is much easier to reach your goals if you establish a workable plan and create a realistic budget. Then, stick to it! Determine how much debt you have and come up with a way to pay it off in as little time as possible. Put as much money as you can toward your bills without making your life absolutely miserable. And, find a way to track your spending so you know where every dollar – every cent – is going. “Take care of the pennies and the dollars will take care of themselves.” Often it is the little things that really ruin our budget.
4. Find Small Ways to Cut Expenses. You may not want to sell your car or your home (unless necessary) but there are small ways that can make a big difference in your monthly expenses. Some ideas include:
- Install a water-saver shower head
- turn lights off when you leave a room
- downgrade your cable package
- pack a lunch
- exercise at home instead of paying for a gym membership
- reduce the number of times you visit a coffee shop in a week
- turn down the heat, turn up the A/C. Even one degree can make a significant difference
5. Separate “Needs” From “Wants”. You can’t avoid needs, but you can save up for wants.
6. Shop for Lower Rates. Do some research to see if you can find better interest rates on loans and debts. Also, check to see if you are getting the best rates on things like auto, home, and life insurances.
7. Look for Sales. Clipping coupons, buying generic brands, watching for sales, and looking for good online deals can save you a lot of money. Keep track of these savings and use this extra money to pay down your debt.
8. Join A Points or Loyalty Program. Today, almost every store and credit card company offers some type of loyalty program. Find one that will benefit you and use your points to purchase necessary items such as groceries, clothing, or gifts.
9. Set Spending Limits. Allot an affordable amount for Christmas, birthdays, or other occasions and stick to it. If you have problems with personal spending, give yourself a weekly cash allowance and when it’s gone – it’s gone! Reducing debt is like finding a successful diet – you don’t have to give up everything but it’s all about portion control.
10. Know Your Weaknesses. Stay away from malls, restaurants, or anyplace that may inspire impulse spending.
11. Find Low Cost/Free Entertainment. Reducing debt doesn’t mean you can’t enjoy life – you just have to become a little more creative. Go to a matinee movie, or better yet, rent one. Use 2-for-1 coupons for restaurants or other events, go out for lunch instead of dinner, sign books out of the library rather than purchasing them. Hiking, biking, visiting with friends, or joining a club can provide hours of entertainment with little to no cost.
12. Do-it-yourself (DIY). Contractors and professionals can be costly, so you can save a lot of money by doing some of your own home improvements or simple repairs. Reduce your grocery bill by planting your own garden or growing your own herbs.
13. Pay Bills On Time. Late charges and fees can add up quickly. Plus, payment delinquency can hurt your credit rating, making it difficult for you to get future loans at good rates.
14. Limit or Avoid Credit Card Use. If you want to have access to a credit card, choose one that has low interest rates and offers features that will benefit you such as cash back or reward points. Keep the credit limit low and don’t use the card unless you can pay it off right away. Interest compounds quickly so try to limit what you charge until you get to the point where you can stay current at all times.
15. Sell What You Don’t Use. Take clothing to a consignment shop, sell furniture and other large items online, or have a garage sale. You might even consider selling a second car or trading your more expensive vehicle in for an older/cheaper one to reduce or eliminate a monthly payment.
I got rid of a few things in the governor’s office that I didn’t believe our citizens should have to pay for. That luxury jet was over-the-top. I put it on eBay.
16. Consolidate Debt. Look into the possibility of combining multiple debts into one larger payment that is easier to pay off.
17. Focus On the Smallest Debt First. Put any extra cash you have toward the smallest debt until it is paid off and maintain the minimum payment on all other debts. Actually paying off a credit card or loan can be very rewarding and a great motivation to continue down the road toward financial freedom.
18. Make Bi-Weekly Mortgage Payments. If you can manage it, this method can reduce your loan term by several years. You pay every 2 weeks; making 26 payments a year; which is one more full mortgage payment than if you paid once a month.
19. Plan for Future Expenses. If you know that eventually the car will need new tires or the roof will need replacing, start setting a little money aside now to save for these expenses. It is better to have an emergency fund or savings account designated for these things than to be caught unprepared and have to rely on high interest credit cards or loans to cover the costs.
If you wait to see how much money you have left at the end of the month to put toward savings, the answer may be zero.
20. Get Credit Counselling. If your financial situation has become overwhelming and you don’t know how to create a workable plan, you may benefit from talking to a trained credit counsellor. These experts can give you advice on how to manage your situation so you find the solution that will work best for you.
Financial freedom is possible when you determine to live within your budget and follow these helpful tips to reduce debt. Learn more about Women in Debt…
Finding ways to cut expenses on credit cards, mortgages and loans will free up extra cash for savings and fun. Get the best bank loan interest rates, avoid payday loans and tempting credit card offers, and learn how to cut expenses on debt. These ten tips will get you on the right track.
In a fast paced society, there are thousands of people who love fast paced spending. A lot of times the the convenience of credit card spending can get way out of hand. The main reason is because of the sheer ability to obtain a credit card and the fact that many have the capability of spending right there at their fingertips. Some of these people don’t even work to earn the credit that they get from these cards. This is how the world of convenience plays on people.
Here are some ways to cut expenses on credit cards that will come in handy even if you have perfect credit:
1. Just Say No! – You will receive a million credit card offers in the mail from time to time. The best thing to do is just tear the whole unopened piece of junk mail and throw it in the trash. There may be times that your curiosity will want to peek just to see what the annual APR is, but even though it says 10.9% APR for 6 months, how much will it be after that? 21.9%??
2. Pay it Off – Sure, go ahead and use the card during the month and when payday comes along, go ahead and pay it off. Yes, make sure that you pay for the purchases that you made that month so you don’t have to pay interest. At the same time you are building your credit as well.
3. Lower Interest Rates – If you must get a credit card, be sure that you get one that has a low interest rate. Make sure that the interest rates actually stay low as well. Fixed APR is what you look for. The lower the interest, the better off you will be. If you have bad or no credit it can be very difficult to find a good fixed low APR.
4. Low or No Fees – To own a credit card, there is usually an annual fee. Then there is a processing fee, a over limit fee, a late fee, etc. By the time it comes to actually paying the minimum that is due on the card. you are swamped with all of these fees, so paying anything really means nothing. Try finding cards that offer low or no fees.
Mortgages work in a similar way. There are high mortgage rates, so there should be many questions that you need to ask. Why do you need the mortgage? Are the intentions of using this money really worth losing your home? Is the money for house renovations and is your job secure for the X amount of years that you will be paying on the mortgage? These are questions you need to ask yourself before buying a home or refinancing your mortgage for debt payoff, renovations, etc. Learn how to reduce mortgage costs with these tips:
5. Lower Rates – Like obtaining a credit card, it is obvious that you need to be sure that you find the lowest rate available. The higher the mortgage, the lower the rate, the fewer the number of years you need to finance. Financing for the minimum length you can afford will save you years of interest!
6. Budget Spending – You need to be sure that you are budgeting your spending so that you can double your mortgage payments or pay at least one extra payment a year. The more you pay, the less interest you have to pay. Make sure your mortgage has a No Prepayment Penalty clause so you can take advantage of making extra payments on the principal balance.
7. You Can Always Refinance – If interest rates are currently lower than your financed interest rate, you should see if you can refinance at a lower rate. You want to be sure that you find the lowest rate and the shortest payoff term you can afford. Just keep in mind, closing costs play a factor in refinancing (and your initial mortgage financing) and should be taken into account when you calculate the best payment terms for your mortgage.
Loans in general are easy to obtain if you have excellent credit. There are some that you want to steer away from, regardless of how tempting they seem to be. A great example are payday loans. It is not good to get a payday loan because you will actually be spending anywhere from $25-100 on a two week loan of about $300. Bank loan interest rates are a lot lower than payday loans, so keep that in mind when you need to borrow for a short period of time. Being smart when you research your loan options will help you find ways to cut expenses and balance your budget.
8. Avoid Payday Loans – These are enticing because sometimes we need to make ends meet until payday. Without thinking about the amount that we pay back, we go ahead and get the short term loan. We end up spending more than what we want to just to find ourselves back in the same position.
9. Lowest Possible Rate – There are companies out there that offer payday loan rates as low as $10 per $100 loaned, which is not that bad. So if you must borrow money for short term usage, get a loan that has the lower fees. You can find these on the Internet as well.
10. Pay it Off – Make sure that you pay it off entirely and not drag it out. Many ‘pay-day’ loan lenders allow you to extend your loan to the next payday, then the next payday, then the… Well, you get the picture. By the time you pay it off, you would have paid double or more for the loan.
Play it smart when looking for ways to cut expenses
There are many ways to cut expenses when you are looking to borrow. Many ads you see are just ways to entice you out of money over the long term; money that you could have saved by disciplining yourself and researching your options. Playing it smart can get you the most bang for your buck.