Now that the New Year’s celebrations are over many people are looking to tidy up their finances. In some cases, that means eliminating or reducing what they owe. Let’s look at some of the most effective ways to get rid of nagging debt.
Establish a Budget
This might not be the most enjoyable way to spend a weekend afternoon, but it will help you tremendously in the long run. First of all, gather information such as:
- Bank account summaries
- Credit card bills
- Utility bills
- Grocery bills
- Mobile phone bills
- Broadband or TV bills
Then sit down with a pen and paper and record your cash expenditures for each month. Remember, some expenses fluctuate such as heating costs, but the important thing is to get a clear picture of where your money is going. Don’t forget to include things like entertainment, health care and eating out. If you can do this process with one or two other people it helps avoid overlooking things. Some areas often overlooked are car costs and insurance premiums.
Now, go over your budget, line by line, and see where you can cut back on your spending. For example, maybe you can rent films using a service like Lovefilm instead of going to the cinema every week. Eating out is also a good place to reduce spending. Perhaps you can trim back your cable TV plan as well.
Here’s a quick, but very effective, way to save money: don’t eat anything you don’t cook/prepare yourself. Takeaways and junk foods cost lots of money. Instead of buying, when you pack your lunch yourself, you save every day. Here are some lunchbox ideas: https://www.lunchboxworld.co.uk/recipes.html
Even things like heating and cooling can be changed with turning down the air conditioner or heater a degree or two. You might be thinking, “How does spending less reduce my debts?” The answer is that the more you save, the more you can put towards paying off your debt.
If you rent your home, consider moving into a less expensive place. This might seem painful, but it can be a big money saving move. Can you move into a smaller place or to a cheaper area? If you are paying a mortgage, find out if you can re-negotiate the terms to make smaller monthly payments.
Take a Look at Credit Cards
Credit cards are can be useful if you don’t want to carry around cash. They can also help keep track of expenditures since your credit card statement carries the details of every purchase. Some cards even give you a useful year end spending summary. When you make credit card payments, pay as much as you can. Don’t just pay the minimum as the unpaid amount is exposed to interest that accumulates over time.
Look out for special credit card deals too. Some cards offer savings on fuel, groceries, travel or other purchases – and some cards even let you sign up to be on an email list that alerts you to savings opportunities. Have a look at the offers available using a credit card comparison engine. Remember, many credit cards offer insurance on things like car rental. Check with your card’s provider before you buy any extra insurance. Finally, some credit cards offer cash back on purchases which can help you save.
How to Pay Off Debt
Maybe you are having trouble making ends meet and therefore can’t make your monthly debt payments. You might have car, house or other loans to pay. If this is the case, you might look into a debt consolidation service. This service basically “buys” your debt and repackages it into one payment you can afford. Be careful and shop around as rates can vary dramatically. Your bank’s local branch office might be able to help you or point you in the right direction.
Debit Cards or Cash?
Really there is not much of a difference here. A debit card basically withdraws money directly from your bank account when you make a purchase. There is essentially no difference in paying with cash vs. debit card. Some advantages to paying with a debit card are:
- You don’t have to carry around cash
- Expenses are recorded on your bank statement making budget calculation easier
- Sometimes discounts are offered with debit cards
What about Store Cards?
Some retail chains offer cards that are basically the same as a credit card with the store’s logo stamped on it. This can be a place to save since some stores offer a discount with your first purchase. Take advantage of this especially if you are willing to:
- Pay off the balance in full right away
- Pay off the card’s balance in full every month
Also, keep an eye out for special deals that stores offer exclusively with their store cards.
When you analyse your budget, you must keep cutting until you at least break even. Then go back over everything and cut some more. This might be painful, but it is always possible. Here are some final tricks to try:
- Drive less and drive slower to save petrol
- Carpool or take public transportation
- Re-evaluate insurance providers and offer to pay a higher excess which means lower monthly premiums
- Give up the health club or gym membership. Running outdoors is free and exercise DVDs are cheap
- Start using supermarket points rewards systems which offer coupons
- Cut back or quit alcohol and smoking
- When you have to buy anything, consider buying used
- Grow a garden and get fresh produce “free”
- Throw down another layer of insulation in your attic to save on energy costs
- Be obsessive about turning off lights and appliances when not in use
- Downgrade your TV or broadband package
- Cancel magazine and newspaper subscriptions and get news from the internet
As you can see, there are many ways to cut corners and save money. You must get tough with yourself and put a little away each month to pay off debt. If you can, pay more than your monthly debt payment. This might cut back on how much interest you pay in the long run.
There are hundreds of ways to save money, but nothing will happen if you don’t set your mind to it. The real battle is psychological. You have to really want to slash your debt. Always remain positive, stay strong and eventually you can be debt free.