Pay Down Debt: Are you Sweating the Big Stuff?

by Ryan Yates

Pay Down Debt - Sweating the Big Stuff

Are you sweating the big stuff?

I’ve mentioned in the past that experts agree that most people waste between 10% and 15% of their monthly incomes.

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

{ 3 comments… read them below or add one }

PennyPincher July 21, 2011 at

I think it is important to re-evaluate monthly spending every year just to make sure your finances are being used wisely. Perhaps your insurance or mortgage rates have changed, or last year a subscription was over looked during your finance assessment. Its paying close attention to your monthly bills that these money leaks become apparent, and I agree, pinching pennies is a great way to increase debt payments and ultimately decrease what you owe much more quickly over time.

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krantcents July 21, 2011 at

I go through an exercise that is routine in business with my expenses. I analyze my expenses to see if I should make changes. I do this 1-2 times a year. Between that analysis I check my run rates and look for exceptions or discrepancies. For me it is more important than keeping a budget because targets waste versus just spending..

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Julia July 21, 2011 at

Great post Jeff! This was absolutely my experience when I started budgeting.

Keep on delivering those pizza pies – you’re an inspiration!!

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