5 Painful (But Effective) Ways to Cut Debt
By Eva Norlyk Smith Ph.D.
January 4, 2012
For some, getting rid of credit card debt can be as simple as changing a few spending habits to free up extra money. However, if you have a lot of credit card debt and want to take serious steps to get it under control, you're going to have to make some sacrifices.
“Most people ignore their debt until it's such a serious problem that they have very few options left,” says Mike Sullivan, director of education for Take Charge America. “But there are times when you're going to have to give up things you've taken for granted. If you don't, someone will do it for you.”
Making deep cuts in your spending might hurt, but remember — you don't have to cut back forever. Here are five painful but effective ways to get rid of credit card debt.
1. Cut the cable: It might be painful to imagine living without 200 channels at your fingertips, but at $75 per month and up, cable TV subscriptions quickly turn into serious expenses. Yet there are other options to get your entertainment fix.
For $7.99 a month, you can get unlimited online streaming from Netflix (which offers thousands of movies and shows) directly onto your TV. Other cost-effective options include Hulu.com and Amazon Instant Video. Google is getting in on the action as well with Google TV, which lets you use the Internet to watch video with your television.
2. Scale back phone services. Take a careful look at what you spend on phone services each month, and get the axe out. Most households don't need both a cell phone and a landline. If a cell phone is a must-have, consider canceling your landline. If you like having a number that's separate from your cell number, you can replace your landline with voice-over IP (VOIP) technology, which allows you to make calls using your Internet connection. Services like Ooma and Google Voice are free for calls within the U.S. You'll just need to buy the hardware needed to make the calls.
In addition, take a careful look at that cell phone bill. Are you paying for more minutes each month than you actually use? Is it time for the kids to scale back that torrent of text messages? Are you utilizing your free night and weekend minutes? Once you start looking, you might be surprised at how many features you can do without.
3. Don't eat out so often. You might not be the next Julia Child, but cooking your own meals instead of eating out is healthy for your body and wallet. A simple thing like bringing lunch to work, even just three times a week, can save $100 to $150 a month. Cooking dinner at home instead of going out can add another $200 to $300 a month in savings.
4. Cut back on car expenses. Next to housing and food, car expenses are one of the biggest budget items. Reevaluating how you use your wheels can unlock savings.
- Carpool. If you live in a metropolitan area, check out sites like RideSearch.com or eRideshare.com to find opportunities for carpooling in your area. Carpooling might entail significantly altering your schedule — but splitting gas costs can help you free up money that was going straight into your tank.
- Keep your car longer. If you take good care of your car, it will likely provide reliable transportation up to 100,000 miles. If you're in the habit of trading your wheels in every few years, consider hanging onto your vehicle for a bit longer. Not having a car payment can help you make significant headway in whittling down your debt.
- Scale back or downsize. Many households are in the habit of having two or more cars. If you're having trouble making ends meet, consider paring your fleet down to one. It can be painful to coordinate several family members' commutes, activities and errands. But making the effort to do so could mean one less monthly car payment.
5. Take a shopping break. Try putting your wallet in the drawer for three to six months and taking it out only for grocery shopping. Postpone major purchases, avoid purchasing new clothing, pass up on irresistible sales offers and stay away from the mall.
At the end of six months, make a list of the things you absolutely do need and purchase them. This might be shock therapy for chronic shopaholics, and it's not for everyone. Yet taking six-month shopping breaks can leave you with more money to tackle your debt.
Radically changing spending habits is never pleasurable, and you may find it useful to get a coach, such as a credit counselor, to help you make the best decisions.
“Credit counseling isn't just for people with serious problems. Credit counselors can also simply help you manage your finances better,” says Sandy Shore, a spokeswoman with Novadebt.org. “By looking at your financial situation, a credit counselor will be able to see where your money goes and suggest options for cutting back best suited to your situation.”