Successful Debt Reduction Strategies for Frugal Moms
Frugal moms know that one huge way to save money is, logically, to reduce the family’s debt. Having to pay out less money each month for credit card payments, medical bills, mortgages and other loans will allow you to spend more of your income on what you choose. It will also make your family more financially secure and allow you to invest and save more. The problem is, how to go about reducing your debt. Here are some ways to begin:
• Commit to paying off your debt.
Make a firm decision to begin today to reduce the amount of debt you owe. Work out a simple budget that shows exactly what you owe, how much you can pay each month, and when you will pay the debt off completely by following your plan.
• Start small.
While you will have to pay on all your bills each month to remain current, focus on paying off the bill with the smallest balance first. When that’s paid off, take the money you were paying on that bill, and with your regular monthly payment, pay the combined amount on the bill with the next smallest balance. Then, when that bill is paid off, take the money you were paying on both bills, and with your regular monthly payment, pay that combined amount on the next smallest balance… and so on until all your bills are paid off.
• Stop incurring more debt.
Stop using credit cards. Refrain from taking out additional loans. And stop buying anything you can’t afford or don’t really need. To have the best results, you’ll also need to learn to save money in a variety of ways. Every dollar saved is a dollar that help pay off your debt more quickly.
• Pay off your bills with the highest interest rate first.
This will typically be your credit cards, but not always. Check your monthly statement to be sure, then pay off those high interest debts as soon as you can.
• Never pay only the minimum amount due.
Financial experts agree that paying only the minimal amount on your bills, especially credit card bills, will keep you in debt the rest of your life. Sadly, that’s what finance companies want because that’s how they earn their money.
But you can get out of that debt trap by paying at least double the amount due on your credit card bill each month, triple, if possible. In addition, add $5-$10 to the principal on your mortgage and other loans each month. (Be sure to designate the amount to go toward the principal). That way, you’ll begin to see some real changes in the amount you owe on your bills and you’ll begin to truly reduce the amount of debt you owe.
• Use any extra money you receive to pay toward your debt.
You can earn additional money in many ways from having a yard sale, to getting an income tax refund, or selling some things on eBay. Whenever you earn additional income or get money you don’t need to live on, use it to pay off one of your bills rather than squandering it on something else. It may take discipline, but the reward of a debt-free life will be worth it!
• Refinance your loans if it will save interest.
After you’ve paid on a loan for awhile, talk to your financial institution to see if it would benefit you to refinance the loan. If doing so only adds more time to the loan, without saving you interest, it’s obviously not worth it. But if it would lessen the amount of time you have to pay and allow you to pay the loan off more quickly, it may be worth considering.
• Restructure your mortgage.
A friend of mine switched her monthly mortgage payments to a bi-weekly accelerated mortgage plan. This shaved seven years and thousands of dollars off her mortgage with an added payment of only $5 more each month! Check with your bank or mortgage company to see if this type mortgage could work for you.
• Consider a balance transfer account.
While this isn’t your best option, it may be worth it to find a loan or credit card with a lower interest rate that would allow you to transfer your high interest balance without additional costs. Be very careful with this, and be sure you are truly coming out better in the long run. This will only work if you have good credit and pay your bills on time.
As you can see, there are many ways to eliminate debt. Most situations will require using more than one of them, but whatever you choose, begin immediately to reduce the amount of money you owe. Your financial stability depends on it in these uncertain economic times.