Buried in Debt?
Tips to Dig Yourself Out
By Daniel Muniz

Are you buried in debt? Are you struggling to pay the most ordinary and mundane bills like the groceries, utilities, mortgage, and everything else? And is there simply no way to pay unexpected expenses like a car or home repair or medical bill without paying all of your other overdue bills even later?

Regardless of all the fancy and uplifting talk, most of the home budgeting fads center around two basic premises:

1. Reduce expenses.
2. Reduce debt.

That’s it! The fluff from the budgeting fads is really about how to accomplish those two objectives.
 

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Credit counselors often point to another option which is to “increase income” but that may not be the best solution for a lot of people. It is easy when someone is young and job hopping is very much the norm. Unfortunately, it becomes so much more difficult once a person becomes proficient at his or her employment and is able to enjoy a certain level of job security. Of course nothing is ever guaranteed in life except death and taxes, it is just harder to leave a place where you are already doing a good job and you are very much wanted and needed by your employer.

But the biggest drawback is that having more income will not necessarily solve all of your problems is you refuse to reduce expenses and reduce debt because after all, that is what got you in the financial hole in the first place. Simply having more money available may very well lead you to increase your expenses and your debt which means that you could end up having even bigger bills that you cannot pay off.

If you can find a better paying job, that’s great. If not, then focus on the two factors that you have complete control over.

Reduce Expenses
It is totally irrelevant how tight money is because just about everybody can find unique and inventive ways to cut costs. The harsh reality is really about how much of a radical adjustment you are willing to make to your lifestyle. And that in itself is perhaps the most difficult question to answer.

As someone who grew up poor and in the barrio and on the wrong side of the tracks, I can honestly say that there are a lot of things you can live without. And besides, many of the creature comforts and conveniences that we take for granted did not even exist 50 years ago or were not in widespread use. Admittedly, it is more difficult for anyone who grew up in the middle class to make severe changes in their lifestyle but it can be done.

So the first step is to identify what you can eliminate or minimize in all of your monthly expenses. It could be substituting name brand items with generic labels for food, clothing, and everything else. Clipping coupons and bargain shopping is another way to trim costs. Lowering utility and fuel costs is also a good start. In places where water is rationed in the summer time, some people minimally maintain the front yard so they won’t be hassled by the homeowner’s association but let their backyard go to hell with almost no watering.

Next, avoid the “gotcha” charges unless it is an absolute emergency. That includes bounced check charges, over-limit fees on credit cards, and late fees for everything else. Banks and other creditors have already identified that these surcharges generate huge revenues. The only way to avoid these “avoidable” expenses is to cut your spending elsewhere. And keep looking for ways to eliminate nickel and dime charges, such as dialing directory assistance on your cell phone. It may only cost a buck and a half but these are the kind of things you need to stop buying.

Now does that mean that you need to get rid of all of your luxuries, like cable television?

Absolutely not! But what it does mean is that you need to minimize those services. Instead of forking out big bucks for three hundred channels and pay-per-view, use a basic package that has several dozen channels. Television has always been the cheapest form of entertainment and it can be used to replace the cost of a dinner and the movies. There are just so many ways to trim expenses without losing your sanity as long as you are willing to be creative.

However, the biggest temptation to overcome is feeling that saving nickels and dimes is futile. Hacking off a few dollars here and there doesn’t seem like a whole lot when you view it as a single item. Instead, view all of your efforts collectively because those few dollars here and there can easily turn into a few hundred dollars when you add them all up at the end of the month. But it is a lot more than just saving money; it is the process of becoming a more frugal and wiser consumer that will help you avoid wasting money on unnecessary expenditures.

Reduce Debt
By reducing expenses, you will have additional money (like a few hundred dollars) for slashing the balances on your revolving accounts and installment loans.

One possible option is to concentrate on your smallest credit obligation first. Although you will be making minimum payments on everything else, a much bigger payment on the smallest item will quickly zero it out which then allows you to focus your attention on the next smaller liability. And then repeat the process.

Another option if all of your credit cards are “maxed” out is to concentrate on making bigger payments on one card and then not use it except for emergencies. What devastates so many people is that they don’t have an emergency fund so when the unexpected happens; they have to pay everything else late in order to cover it (which racks up more outrageous late fees). Although it would be better to have an emergency fund of liquid cash, if you are too broke, this may be the only alternative because you need an escape hatch for the unexpected expenses in life.

It is absolutely critical to have such an emergency fund, whether it is cash or the available limit on a credit card. It will prevent you from paying all those “gotcha” charges while you are reducing your debt.

Again, there is the temptation to feel that even a few extra hundred dollars cannot make the difference in reducing your debt. That is completely wrong! Once you become a wiser and more frugal consumer, you will stop flushing money down the toilet on unnecessary expenses. Being an informed and better consumer will no longer turn you into a victim of monetary circumstances. Of course it is not easy but the effort is worth it.

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