How to Cut Back Living Expenses & Credit Cards
One of the most effective ways of finding extra money to pay off credit cards is by cutting household expenses. Record and organize monthly purchases into categories, then construct and follow a budget and credit repayment plan to cut back living expenses and make larger payments to pay off credit cards faster.
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Instructions
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Make a list of everything you spend money on during the month. Begin with your fixed expenses, which are costs that don't change each month, such as rent, car payments and insurance premiums. Continue with variable expenses, which usually change from month to month, such as groceries, entertainment, gas and utility bills.
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Review the fixed expenses, disregarding credit products such as mortgages, loans and credit cards. Label each item as a "want" or a "need". Cut wants out of your budget. For needs, think carefully about the expense. Research reducing the cost of the item, either by simplifying requirements or choosing a cheaper version. For example, reduce bank fees by changing to a more basic account or switch to a bank offering a cheaper banking plan.
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Review the variable expense list and label each as a want or need. Cut out the items in the want category, and for each need record a method of reducing consumption or finding a cheaper alternative. There are many ways to reduce the expenses in this category. For example, you can slash food costs by avoiding eating out, cutting coupons, buying items on sale and in bulk, growing a vegetable garden and cooking from scratch.
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Tally the amounts saved from cutting out the wants and reducing the cost of the needs. For the credit products, contact the bank or credit card company for each. Request a reduction in the interest rate charged. If this isn't possible, ask to switch to a cheaper product.
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Arrange your credit card bills in order from highest interest rate charged to the lowest. Each month make the minimum payment required for each, and for the highest rate card apply the extra funds saved by cutting back your living expenses. Try not to make additional purchases on the credit card. If you use the card, pay off the amount added that month plus the minimum payment.
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Once the highest rate card has been paid off, apply the amount that you were paying to the card with the next highest interest rate. Continue until all your credit cards are paid off. Return to the list of Needs and Wants, and choose your favorite Want as a reward for your discipline and sacrifice in cutting expenses and credit card debt.
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Tips & Warnings
Don't forget to include items that are easy to overlook such as bank account fees, creditor insurance fees and bills that may appear every two months or quarterly. Reduce your energy costs by using fans instead of central air conditioning and weatherproofing around doors and windows to stop heat from escaping.
Be careful not to accept lower payments on mortgages or loans if it means increasing the interest rate. This will increase the overall interest costs over the long term. Once a card has been paid off, be certain to pay off your balance each month or cancel the card if it is not required.
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