Show Me the Money — to Pay Down Debt
July 09, 2012One of the common complaints I hear from people who are trying to get out of debt is they are financially strapped. “How can I pay down debt when I can barely make ends meet?” Since the economic downturn in 2008, overtime pay has gone away, salaries were cut and haven’t come back up, and those who lost jobs and found new ones are unfortunately getting paid less. It’s tough to find extra money to pay off credit cards and other loans but it can be done.
In fact, it has to be done to achieve any kind of financial security. Carrying high interest rate debt is a drain on any budget and a waste of money. It’s not helping you move forward – it is paying for what you spent yesterday!
Getting a handle on your cash flow isn’t easy because money permeates just about everything we do. You can’t “quit money” like you quit smoking. If you stop smoking cigarettes, you can avoid them altogether by not buying them in the first place and turning the other way when you see someone smoking.
You can’t avoid money. Every adult has to make a rent or mortgage payment and buy gas, car insurance, and now with the Supreme Court ruling, health insurance too. A pack of gum requires reaching into your wallet – there is no getting around it.
The key to living below your means isn’t to avoid expenses but to track them. Then see where you can cut. Use those “freed up” dollars to pay down high interest credit cards. Going the high tech route and using an app like Mint.com or going old school and simply reviewing your bank transaction weekly and making notes on a yellow pad can work for you. Once you have an idea where your money is really going, look for both the low lying fruit – the easy places to cut and dig deeper to see what can make the biggest impact. Here are some examples:
The low lying fruit: There may be places where you are spending money and not really realizing it but it won’t make a big difference in your life if you stop. When I first started tracking my spending, I found that I was spending $80 a month going out to lunch with my girlfriends. As a working mom, I wanted to spend evenings with my family and lunch was a special time to hang out with my friends. After realizing that I would have spent almost $5,000 in five years on calamari salad and iced tea, I decided to change it up with my friends and started a walking club at lunch. We walked and talked then drank protein shakes before heading back to the office – much healthier all around. Find money you are wasting – choose an inexpensive alternative and then earmark those dollars to pay down debt.
The biggest impact: Look for the money savers that would make a profound difference. They may take some sacrifice to implement but can make or break your future by helping you get out debt of faster. Review the highest dollar amounts on your tracking list – usually you’ll see housing and transportation. Consider moving to a smaller place or if you are a homeowner, renting out a room or getting a roommate to share expenses – even for a short time. Use the rent money only for debt reduction! Someone with $5,000 in debt could be just about debt free in 7 months if they could get $700 a month in rent whereas if they were only able to shave off $100 a month toward the debt, it would take over 4 years.
What about selling your car and buying a much less expensive one? My son drives a Mercedes Benz 500E, a beautiful car, but very costly to insure and maintain. He recently told me that even though he loves his car, he is in the process of looking for a late model pickup truck that he can repair himself. His insurance premiums will be cut in half and his repairs cut by seventy five percent.
Look for expenses you can cut that would make the biggest difference in your debt reduction plan. Use the Debtblaster Calculator to find out how much sooner you’d be out of debt by making the sacrifice. Determine whether it is worth it.
A former boss of mine once told me, “you can do anything for four months.” She said it because we were going through a bank merger and we all knew it would be chaotic for a while. She was right. When I knew I had a short period of sacrifice, I was able to handle the long hours and intensity of the work. I forget when it calmed down, but that concept has always stuck with me. You can do anything for a short time to get out of debt — forever.
You never know. You might actually like the pickup truck better and build a life-long friendship with your new housemate. But even if you don’t, you’ll be debt free.
Resources:
Debt blaster calculator,
Expense tracker (better than a yellow pad!)