4 little-known ways to cut expenses when you're in debt
When it comes to cutting expenses, there is a lot of helpful ideas on how to save a few hundred dollars on your monthly bills, but not every idea will work for everyone. If you are considering lowering your monthly expenses, there is only one thing I want you to remember – you have to understand what your choices are, how you can change your spending habits and the consequences of your decisions.
If you have debt, cutting expenses is not easy. It's hard work and takes a lot of determination and investigative work. A huge part of this commitment is putting away your credit cards. I am not saying to give up credit cards entirely or forever. Having only one credit card to use for emergencies if you have no savings is fine, but should be a last resort.
Everyone's needs are different; therefore, everyone has different expenses and priorities. It would be impossible for me to list all of the ways you could cut back, but I do have four ways you might want to consider. No matter what strategy you use, always remember to keep things realistic and obtainable. Nothing is worse than setting yourself up for failure before you even begin.
If you are needing more money at the end of the month or working towards a financial goal, reducing your expenses is critical. Now, I am not saying it has to be radical. Cutting your expenses by a few hundred dollars every month is a huge step and one you should be proud of. It's also important to remember that when cutting costs, some require bigger sacrifices than others. When reading this article, there are some other things I want you to keep in mind:
- If you are trying to decide if a small change will help your financial situation, calculate the savings over a year, not just over a week or month. Look at the big picture, and make your decision from there.
- What do you need to make you happy or what will get you to your end goal? During my financial journey, I have learned that experiences make most people happy, not purchases.
AVOID PRESSURE-RELATED SHOPPING
Raise your hand if you are guilty of this. Trust me; I am behind this computer raising my hand right now. There are a lot of people who respond to anxiety and financial pressure by going shopping, buying items they really don't need, or by going window shopping (which usually ends up with making a purchase).
If you already in debt, then this can lead to huge problems. Pressure-related shopping not only digs you deeper in debt, but there is a chance that this type of spending can also cause you problems if you later decide to file for bankruptcy. Bankruptcy is never the first option I give to people who have a spending or debt issue, but it is an option. If your creditors can prove that you ran up your credit cards knowing that you could not pay them back, you may lose your right to erase those debts in bankruptcy.
If you know you suffer from pressure-related shopping, it's time to start thinking about what influences your decision to shop and what to buy. Every single day, we are surrounded and affected by the views of friends, family, neighbors, and even advertising and marketing executives. You can resist the urge to spend unnecessarily by taking 30 seconds to pause before your buy. This is what I like to call the "time out" period. During this time, ask yourself, "Why am I buying this?" A "time-out" period doesn't have to happen every time you go to the grocery store, but it should be something that you regularly do. If your answer to this question is, "because I just want it" or "because my friend recommended it to me," then I suggest waiting before you complete a purchase. The truth is, you'll probably realize later that the money you would have spent could have been used for something way more important, such as paying off debt or saving for that family vacation.
Some people think, "Why does it matter? It's only $40?" If you add up all of those $40 unnecessary purchases at the end of the month, you might surprise yourself with the actual cost.
CANCEL UNNECESSARY PRIVATE MORTGAGE INSURANCE
Also known as PMI, this type of insurance is usually required if the down payment on the loan you used to purchase your house was less than 20% of the sale price. PMI protects the lender if you default on your home loan. What most people don't realize is that once you have more than 20% equity in your property, there is no longer any need for private mortgage insurance and it should be canceled.
In 1998, a law was passed that states that the lender of your home loan is supposed to automatically terminate or cancel your PMI policy when you first owe less than 78% of the original value of the property. This law only applies to loans made after July 1, 1999. There are particular types of loans such as certain high-risk loans and affordable housing programs where this doesn't apply. Even if your home loan does not fall under this law, you should still reach out to your home loan provider when you have 20% equity in your home to see if the PMI can be canceled.
REDUCE YOUR UTILITY BILL
Everyone needs utility service to survive, but you might be paying too much. If you have a hard time paying for your utility bill in the hottest months of summer due to air conditioning needs and during the coldest months of winter due to extra heating, then you might want to look into an option called a level payment plan. Getting on this type of program can literally save you one-half to one-third on your utility bill. The best news, it's usually offered for free by your utility company.
A level payment plan allows you to avoid running up debts during high-usage months by averaging your expected bills. Your yearly bill is divided into equal monthly installments, which means you pay the same amount every single month based on average use rather than actual use.
For example, if your total gas bill for a year is $1,400, you would pay $116.67 each month instead of $250 to $300 a month in the winter, and $50 to $60 a month in the summer.
REDUCE YOUR INSURANCE POLICY PREMIUMS
Most of the time, you can lower your insurance costs by hundreds of dollars by doing two things – reducing your coverage or increasing your deductible. If you decide to reduce your deductible (the amount you pay before your insurance plan starts to pay), just make sure you can afford the deductible if you need to make a claim.
For car insurance, always make sure to get the minimum required by your state and opt for a higher deductible. Your rate is likely to be lower the longer you're with a carrier. If you find a better deal, always make sure to ask your current carrier to match it before switching.
If you own a car and a home, you can usually get better rates if you have both insured by the same company. If you are doing comparison shopping for better prices, see if your state department of insurance publishes rate comparisons. You can find state insurance department websites from the National Association of Insurance Commissioners (www.naic.org).
Remember, not all insurance is worth it. You may decide to get rid of it all together. Expensive credit insurance and some kinds of life insurance should be reviewed periodically.
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