October 7th, 2013
Practical Ways to Speed Up Your Debt Payoff
8 Comments |
**Today’s guest post is contributed by Fiona.**
Paying off debt can feel like a slow and agonizing process. When I was paying off my student loans and contributing the lowest amount possible due to my rather limited financial circumstances as a 20-something in publishing, it felt as though I would never pay off my loans. But watching that number go down month-by-month—and then year by year—felt very good, and it was a great day when I made that last payment.
Reducing debt rewards the steady, but there are also things we can do to get to our destinations more quickly. From cutting small expenses to going on a spending diet to forming a support group, here are some tips to help you speed along the way to financial freedom.
The Minor Fall, the Major Lift: Cutting Small Expenses
It wouldn’t be a personal finance article if we didn’t talk about cutting small expenses. You’ve undoubtedly heard it before: cutting out coffees and cable TV. This is good advice, because the savings do add up over time. For example, Lifehacker calculated that cutting out a daily $2 expense resulted in savings of $56,694 over forty years; that’s why eliminating small expenses can actually be a powerful part of reducing debt.
But beyond our regular, habitual expenses lurk another danger: impulse buying. All of our good intentions and work can be undone with a single purchase. So here’s another tip to aid you: whenever you feel like buying something, do something proactive with that impulse instead of actually making the purchase. Put it on your Amazon wishlist. Pin it to your Pinterest board. Let it sit for a while. Just don’t buy it immediately. I find that the vast majority of the time, I don’t even remember why I wanted something earlier, and the urge to buy fades.
Eliminating Major Expenses
As much as cutting out small day-to-day expenses can help, even bigger savings can come when you make major lifestyle changes. Think about what you can cut out. Can you sell your car and take public transportation or bike to work? If you’re a renter, can you reduce your rent by moving to a cheaper place? If you’re having trouble paying your mortgage payment, can you do a short sale to get out of the house?
For instance, I recently downsized from a one-bedroom apartment to a much smaller studio in-law apartment in a house, for a reduction in rent of $500. I’m also saving on utilities now since I share utilities with the other residents of the shared house and laundry is included. Previously, these were all expenses I covered myself. Thanks to all of this, I’m saving $580 monthly compared to my previous living situation. Those are huge savings every month.
Go on a Spending Diet
There are many ways of going on a spending diet, where you don’t spend any money for a certain period of time. Some folks only spend money on the weekends. Others don’t buy anything new for a month or a year. Others live on one income or half their salary. However you choose to do it, going on a spending diet will result in savings fast.
The main drive to go on a spending diet is not just to save money, but also to reinvent your relationship with money so that it is more conscious. What can you do with what you already have? When is enough enough? Do you really need that, or do you just want it? Learning to be satisfied with what we already have can be tough in a world of advertising and in a society where shopping is a competitive sport, but the rewards are priceless: more savings, less debt, less clutter, and less pressure to buy, buy, buy.
Earn Extra Money
Earning extra money is a no-brainer for those who are serious about reducing debt. There are two major benefits: earning extra money, of course, but you’re also diversifying your sources of income so if you lose a job, you aren’t completely left without a steady source of money. And quite frankly, using your spare time to earn extra money will keep you too busy to spend.
You can earn money in many different ways: selling your extra stuff on Craigslist and eBay, freelancing through websites such as Elance or Guru, or finding a part-time job. You can also participate in what’s called the collaborative economy, where people make money by renting out their apartments, cars, and tools to others. If you do make extra money, be sure to dedicate it to your debt and know which credit card to pay off first (or other type of debt).
Form a Support Group
Our friends are a powerful factor in the way we spend. We’ve all heard of “keeping up with the Joneses,” and if your friends spend money like water, then you’re more likely to spend that way as well. On the other hand, frugalistas who flock together save together.
To stay on your path towards removing debt, consider finding or forming your own debt-support group. It can be a huge relief to have friends where you can openly say, “I can’t do that because I can’t afford it,” and not be judged. You can share tips, find support, and celebrate your wins together.
This is just the beginning of what you can do to tackle debt. What practical tips have you found to help you on the way to the big zero?
Fiona Lee is a personal finance writer at ReadyForZero, a site dedicated to helping Americans manage and pay off their debt – for free.
Follow Credit Karma!