One way you can look for money to pay down debt is to find the small money leaks that amount to that wasted money, and use that wasted extra money to create a debt reduction plan.
While this can be an effective way to find a little more money in your budget each month to reduce your debt, you can take a bigger chunk out of your debt when you sweat the big stuff.
Bigger Money Leaks
Many of us find that we have bigger money leaks than originally thought. While there is nothing wrong with looking for the smaller leaks, it’s definitely worth your while to look for bigger ways you are spending lots of money. Here are some examples:
- Mortgage payment: If you bought your home before the recession — even if you bought two years ago — you might be paying more per month than you should be in interest. Interest rates are near record lows right now. If you will be in your home for awhile, you might be able to refinance to a lower interest rate, saving you money each month. In my case, refinancing would save me about $150 a month — and I wouldn’t even have to extend my loan term. Before you do this, make sure that the costs associated with refinancing are offset by savings. (Many lenders are offer no cost refinancing, so that is a plus.)
- Insurance premiums: If you haven’t shopped around for insurance in a long time, it might be worth it to see if you can get a better rate. Older cars might not need comprehensive coverage anymore, and dropping it can save you. Check your health insurance policy to find out if you are paying for coverage you don’t need (I had a friend who was paying for maternity — even after a hysterectomy). I am saving $300 a month by switching to a high deductible health plan. Increasing your deductible (make sure you have an emergency fund that can handle it) can provide you with substantial savings.
- Subscriptions: This includes all of your subscriptions. Are you really using that premium movie cable package? Even if you are, if you are willing to wait for new releases, you can pay a fraction of the cost and get access to Netflix — or other sources of streaming movies. Rather than paying $114 a month for a movie channel package, I can pay $7.99 for streaming only on Netflix, saving me more than $100 a month. Other subscriptions, like cell phone plans, MMORPG, and publications should all be reconsidered. Add all your subscriptions together to see where you could be saving.
Yes, pinching pennies can be effective when it comes to paying off credit card debt. However, you can get even more dramatic results when you take the time to look for the big money leaks. Being able to apply an extra $100 — on top of the small amounts you are putting toward debt reduction — can make a big difference.
What are the big money leaks you’ve been able to plug?
Photo by Greencolander