How to Cut Expenses to Pay Off Debt

The economic turmoil of recent years has taught many the value of paying off debt to eliminate interest payments, but it can be difficult to find the money to make extra loan or credit card payments. Identify and organize household and individual purchases, bills and statements to see opportunities to cut expenses or eliminate them altogether, freeing up money to pay off your debt.

Instructions

1

List each and every household and individual expense. Divide them into fixed and variable expenses. Fixed expenses are set amounts that are the same each month, such as rent or mortgage, payments for vehicles, insurance, loans, cable TV and Internet. Variable expenses are things that you may spend different amounts on each month, such as groceries, heating, gas, coffee, snacks and entertainment.

2

Use a small notebook to record everything you spend money on each day. At the end of the week, go through your list and label each item a "Need" or a "Want." For each Want, consider eliminating it entirely, reducing it or choosing a cheaper alternative. For example, coffee drinkers can stop drinking coffee, purchase one every other day or bring it from home in a travel mug. Record and total the amount you will save.

3

Review your fixed expenses, ignoring the credit products such as mortgages, loans and credit cards. Cut costs by decreasing consumption, choosing a cheaper alternative or eliminating the expense altogether. For example, walking instead of driving and carpooling saves gas money, but selling the car saves more. Research and compare banks for low or no-charge accounts. Lower the thermostat and wear a sweater to save on heating. Cancel cable TV and borrow DVDs from the library. Total the amount saved for fixed expenses.

4

Study your credit expenses. For each loan, line of credit, mortgage or credit card, call the company and ask if they can reduce your interest rate or offer a similar product with a lower interest rate. Calculate the interest savings for each item and total it. Add this amount to the money saved from cost-cutting your variable and fixed expenses.

5

List debts in order of highest interest rate to lowest. For each one, make the minimum payment required, but for the highest interest rate loan, make an extra payment using the money saved by reducing your expenses. Once that debt is paid off, apply the extra money to the debt with the next highest interest rate. Continue until your debt is paid off, then direct the money to savings.