Money Saving Tips
To tackle your debt you will need some extra money to pay the bills you owe. If this means getting a second job then those are the sacrifices needed. Also, a simpler approach that will help free up some extra cash is to cut back on some luxuries. Here are 10 simple tips:
- Brown Bag it to work
- Don’t drive with your air conditioning on unless it is hot. It cuts your mileage by 20 percent
- If you have a 30-year fixed mortgage, making a payment every three weeks instead of every month can reduce the amount of interest paid significantly.
- Learn to love leftovers. If you want to trim your food budget in half then you will need to stretch each meal into two.
- Save on postage by paying bills online. Also, this will reduce the risk of paying late and absorbing those pesky late fees.
- What’s wrong with catching a matinee instead of going to the movies at night? Matinees provide the same movie at a discount
- Bundle your media services. Cable, Internet & Phone all on one bill. Most companies are more price-effective using this method.
- Use your debit card for purchases instead of your credit card to avoid credit card interest and fees.
- You will spend less on food if you shop with a list and stick to it.
- Shop out-of-season
Which Debt to Eliminate First?
Once you have your debt calculated and broken down by what you owe to each creditor you need to determine which payments should take priority over the others. Credit card debt, for example, is a very easy way to string out and grow your debt over the years because credit cards typically have very high interest rates. If you have 5,000 dollars in credit card debt and pay the minimum payment each month, which is usually around 2 percent (so we can figure that you pay $100 a month), have you considered how long and how large this debt will become by the end of your payments? By paying the minimum payment every month, if your interest rate is 18 percent, you will take 7 years and 10 months to pay off your credit card and will have added an extra $4,311 to your original $5,000 debt. Minimum payments are how credit card companies make money and how you keep yourself bogged down in debt.
By paying just an extra $50 each month towards this bill, you can pay off your credit card debt in 3 years and 11 months, paying $1,983 extra from interest rates, which is still a lot of money, but a great deal less than if you only pay the minimum amount.
Focus your efforts on the balances that charge the highest interest rates first. For the balances that have high interest rates, you want to prioritize paying these over all the other balances, so while making the minimum payments on the other balances, you want to direct as much money to get rid of these high-interest balances as you can.
For some people, there is a particular debt that is heavy on their minds or that causes a lot of trouble for them due to either family or creditor-related issues. Although this debt may not be the one costing you the most interest, you may want to consider making this debt your highest priority to get the stress of this debt off of your mind. Still, other people find that starting with the smallest debt is a helpful way to bring down the number of creditors they have, which can bring a feeling of relief to some people.
Get Out of Debt Plan
When resolving to get out of debt, good intentions are an important, but not sufficiently effective first step. What you need is a plan and the initiative to follow through with this plan. You have to break away from your old habits that got you into debt and you have to lay down your new lifestyle securely in the place of the old habits to turn your financial life around.
As I am sure you have realized, having debt is an expensive situation to be in; each month that you have debt, you accumulate more debt through interest. If your credit card rate is 20 percent, each time you buy something on that credit card and do not pay off the amount of the item right away, you are paying 20 percent more than the price of the item. For example, charging a $200 jacket without paying the full cost on your next credit card bill means you just paid $240 for a $200 jacket. If you cannot afford to pay more than the minimum payment for the item that month, then you probably cannot afford to buy the item in the first place.
This is an important point to keep in mind when you are tempted to charge purchases because of a deal that is too good to pass by. Any financial benefit that a sale or clearance may have is going to be canceled out by interest payments on your credit card if you cannot afford to pay off the entire amount of your purchase immediately. What often happens is a purchase that started as a good deal, such as buy one DVD get one half off, was a $60 purchase for $80 worth of merchandise. When you do not pay off the $60 on your credit card with a 25 percent interest rate, though, after one month those two DVDs just cost you $75, only $5 under the listed price. If you go another month without paying them off, you have now accumulated $93,75 worth of debt for $80 worth of DVDs.
Causes of Debt
There are a lot of causes of debt. The economy certainly has its ups and downs that can send entire industries and all the people who depend upon that industry onto hard times. A slump in the real estate market, for example, can send investors, real estate agents, construction workers, construction supply company employees and owners, and families who rely on the value of their homes to unexpectedly fall into an unpredictable and undefined period of financial strife. These difficulties can cause people to have to borrow money to stay afloat or they can cause people to fall behind on paying off what otherwise would have been a manageable and simple debt.
Many more people deal with unanticipated expenses that force them to borrow money that they otherwise would not have needed. For example, medical debt is a very common cause of financial difficulty. When treatments are expensive but necessary, the last thing we want to consider is the financial consequences of hospital stays and medications, but, unfortunately, these problems are often waiting for us at what we thought was the end of our difficulties.
