The best way to begin getting your debt under control is to reduce your monthly spending. But I don't spend that much, you say? Well, if you keep a record of every single expenditure you make for one month, you are going to be very surprised when you discover just how much you are wasting each month. So, as painful as it is to do, we advise you to keep track of every penny you spend for at least two months.
At the end of each month, divide up your expenditures in to categories and determine how much of your spending was unnecessary. If you are like most people, you will find a significant amount of money is being spent on unnecessary items and luxuries. For example, a trip to the soda machine at work each day eats up $20.00 a month. That isn't a lot of money, but little purchases add up -- the dry cleaning, eating out at fast food restaurants, the cable bill, etc. Many people discover they are spending anywhere from $300 to $800 on non-necessities.
Two Types of Expenses
There are two types of expenses you face each month: fixed and variable. Examples of fixed expenses are your mortgage or housing payment, car loans, personal loans and anything else that cannot easily be changed or eliminated each month. To alter a fixed expense would require refinancing your mortgage, car payment, selling off assets, etc.
Variable expenses include those that can be changed or eliminated entirely, such as food, clothing, entertainment, vacations, utilities, etc. Since it is much easier to reduce variable expenses than it is to
reduce fixed expenses, this is where you should start to cut back.
Get Rid of Unnecessary Expenses
Reducing variable expenses involves altering your habits or doing without. For example, you can prepare meals from scratch instead of buying expensive take-out and prepared or frozen foods. Eating out is by far the biggest needless expense most families have. If you keep track of every penny you spend on fast food each month, you might realize that you are spending $300 or as much as $600 on fast food. You could prepare meals at home for one-fourth the cost of eating out. Raising your thermostat just two degrees will reduce your monthly air conditioning bill by 10 percent!
Cancel your cable and mobile phone services when your contract expires -- people lived for thousands of years without these things -- you can too. Use e-mail instead of making long distance phone calls.
You might have to give up your weekly manicures or adopt a low maintenance hairstyle so you require fewer trips to the hair salon. Again, by cutting back on unnecessary expenses and luxuries, most people find they can free up hundreds each month that can be used to pay down your debt.
Your goal in doing this is to avoid bankruptcy, credit counseling services and possibly debt collection agencies and lawsuits somewhere down the road.