How to Manage Your Debt and Save Hundreds
Controlling debt is a commonly missed step in wealth building. Most people tend to get lost in the excitement of developing income streams and forget about the basics. Don’t be one of those people. You have to make sure all of the leaks in your financial bucket are plugged before you start to build wealth and that means taking stock of your current obligations and cutting the fat from your budget. Here’s a step-by-step list to help you get your personal debt under control:
1. List all of Your Expenses
Before you can start cutting the fat from your budget, you have to know where the fat is. Get a pad of paper and a pen, then sit down and list all of your monthly obligations.
2. Identify Areas of Opportunity
Now that you have your list of monthly expenses in front of you, some areas of opportunity should become apparent. Here are a couple of common places to save money in a budget:
a. Credit Card Debt- Almost everyone has credit card debt and most have too much of it. This kind of debt can be a great way to shave as much as a few hundred dollars from your monthly expenses.
First, write down how much you’re paying in interest on each of your credit cards. Then search out credit cards that offer a lower interest or a 0% introductory rate for balance transfers. Apply for the cards and transfer the balances.
*TIP* Open a separate free checking account and have your credit cards auto-draft from the account. Open the account with enough money to cover all your minimum payments (to prevent overdraft) and just make one deposit per month in the account to cover all your card payments. This tip will help you prevent late charges and interest penalties. Especially if you have lots of cards to keep track of.
You should also consider a second mortgage if you have a home with equity. The interest rate will likely be lower than your average credit card interest rate and the interest on home equity loans can be tax deductable.
b. Insurance Payments- Insurance payments are probably the most popular way to save money. For example, I call around once a year to make sure I’m still getting the best rates on my car and home insurance policies. I’ve been with GEICO for the past four years, but this year AIG Direct made me an offer I couldn’t refuse. I saved $400 a year over GEICO’s rates. In addition, AIG’s rates were $1,600 a year lower than the highest rate I was quoted. Nice huh?
c. Membership fees- I you go to the gym regularly, that’s fine. But if you have a gym membership and never go, then you’re not doing your body or your wallet any good. Get rid of it.
That goes for other memberships too. AAA is a great membership to have… unless your car insurance already offers you towing service. Don’t pay twice for one service.
Take a good look at any and all clubs, services, and organizations to which you pay monthly fees. If you’re not using them consistently; dump them!
3. Make Your Variable Costs Set Costs
Instead of saying you have a $200 budget for entertainment/dining, actually pay it to yourself. Every month shell out $200. Use this money for entertainment and dining only. Once the money is gone, you’re done for the month. Using this method will prevent overspending.
A word of warning: This tip will only work with discretionary spending. You can’t really budget gas and groceries with this method since you’ll still need to eat and drive even if you run out of cash. It’s better to manage those kinds of expenses on a week-by-week basis so you can cut back one week to make up for overspending on another.
4. Rinse and Repeat….Always Repeat
Repeat these steps every 3 months or so. Make sure your debt never gets out of control again.
Once you plug the holes in your financial bucket, you can start filling it with obscene amounts of money!
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