Stop Big Spending - Support for the Spending Sprees

Save Money in Minutes
With This Four-Step Debt Cutting Strategy

 If you’re sick and tired of credit card and personal loan debt sapping your income and holding you back from achieving a stronger financial status, here’s your chance to take control. Instead of just dutifully making your monthly payments and hoping the debt eventually disappears, the following four steps can help you more strategically attack it.

For any of these to work effectively, you have to commit to putting your cards away and not charging any more to them. Every charge is a damaging backslide, and makes it that much harder to ever get out from under the ever-expanding balance. (Isn’t that kind of how you dug the hole in the first place, after all?)

If you can say a solid “yes” to that concept, then read on:

1. Pinpoint your priorities.
Take stock of your current credit card and personal loan balances and associated interest rates. The average credit-card APR is around 15 percent, which is prohibitive if you’re scrambling to pay down a high balance.

First, prioritize your debts by interest rate. Next, what you’ll do is take what you’ve been paying for all the debts and “pool it.” You’ll pay the minimums on all the debts except the one with the highest rate — to that, you’ll pay the rest of the pool. When that’s paid off, you attack the second-highest rate in the same way.

By focusing on one at a time, paying as much as possible (and also putting any “windfall” payments such as a tax refund or inheritance 100 percent toward it), you can cut your highest-cost debt fastest, and as each is paid, the money snowballs, meaning you can make slightly larger payments to the second on the list, then the third, and so on.

2. Pay more often.
Just because the credit card company only bills you once per month doesn’t mean you should only pay that rarely. Make a payment to the highest-rate card every time you get a check, whether that’s twice a month or weekly.

3. Try a DIY consolidation.
Once you put that payment plan into motion, you can then start attacking the debt from a different angle. Instead of seeking out one of those shifty “debt consolidation services,” you may be able to effectively consolidate debts into a lower interest rate yourself.

Do some research on all of your current cards to find their latest “balance transfer” offers. You’ll want to look for one with a lowest APR for the longest period of time you can find.

You’ll also have to watch out for a “balance transfer fee” — some have no fee, while others charge a percentage of what you transfer, but even in the latter scenario it may not be a deal breaker. Just do some calculations to see that, even including the fee, you’ll save money on interest rates based on how long it will take you to pay off the balance.

4. Consider an industrial-strength debt scrubber.
After you make a payment plan and consolidate into lower interest rates, there is a third option to consider if you feel the debt is so costly as to be compromising your ability to live comfortably. Keep in mind, though, this option is only for those who are absolutely serious about eliminating the debt and committed to never carrying a balance again on a card.

If you have a 401(k), you may be able to take a “loan” from it. The bad thing: Taking money out of your savings crimps the power of compound interest, which can put a sizeable dent on your potential retirement nest egg. The good thing: Instead of borrowing from a bank and paying them a hefty interest rate, you pay a more reasonable interest rate to yourself.

That’s because 401(k) loans charge an interest rate on what you borrow, but that money collected goes into your own fund, and not to a third-party bank. You may have to pay an up-front processing fee, but after that, all the payments you make — which are withheld from your future paychecks until the loan is repaid in full — go directly back into your 401(k) investment account.

Again, a 401(k) loan is not to be considered lightly, but it could prove to be a potent weapon in slashing through a pile of debt and resetting your financial foundation much more firmly in positive territory.

Keep More of the Money You Have
With These Five Tips

The following five tips will help you cut some waste and squeeze the most benefit out of the money you already have.

1. Set aside a full day to tackle your important financial upkeep.

Make sure it’s a day when people with whom you may need to speak, such as insurance agents and credit-card company representatives, are available. If home is too noisy or distracting, assemble the papers you’ll need and head somewhere you can work in peace.

Approach your financial upkeep the same way you approach cleaning your home: First, assemble all the supplies you need to do the job well. The night before your scheduled “cleaning” day, get together you recurring bills, checkbook, bank and brokerage statements, a phone book, and a pad and pen for notes and place them near your computer and phone.

2. Take the time to reorganize your important financial documents.

Choose a money management system you can use online. Web-based systems mint.com, and moneystrands.com are popular choices. If you want to keep it in your computer instead, choose Quicken (quicken.intuit.com). For the self-employed, consider freshbooks.com or Quicken’s small business offerings.

Not good at keeping track of paper receipts? For about $5, you can buy an attractive expandable file with a dozen or so compartments that will look good on your bookcase and house your receipts until it’s time to total them up. Photocopy both sides of every credit card and every single card and ID you carry in your wallet and store the resulting document in your files.

3. Review your investment portfolio.

So many people invest and forget it (except when the market is way, way down), but it’s important to re-evaluate your investments on a regular basis. It’s often a place you can save money quickly.

For example, suppose you could revamp a $300,000 portfolio and manage to cut annual fund expenses or other fees by just half a percentage point. That one move
would save you $1,500 a year!

Check the fees you’re paying on all of your investments, including advisory fees, mutual fund management fees, and sales charges. If you have an investment adviser, ask him or her to provide you with the fees in dollars. If you’re managing your own investments, use the “fund analyzer” calculator at finra.org, the Web site for the Financial Industry Regulatory Authority.

You might be able to find a fund that achieves your goals more cheaply. For instance, if you own a pile of S&P stocks though a managed fund, could you get into an exchange-traded fund or index fund that does the same thing at a lower price?

4. Learn what to expect at tax time.

You can use the simple calculator at www.1040.com (click on “tax tools” for the federal tax estimator) to get an idea of your federal taxes this year. Knowing your tax rate makes you more able to make after-tax decisions, such as whether to invest in tax-free bonds, how much of a mortgage payment you can afford, and the final cost of a charitable donation. Plus, it will motivate you to lower your taxes by taking pre-tax benefits through work, such as a flexible spending account for healthcare or childcare costs.

5. Cut insurance premiums.

Review your car, life, and property insurance bills. If you haven’t already done so, list computers and other electronics, furniture, jewelry, and other personal property you own and estimate their total value. Write down the premiums you are paying, then visit lowermybills.com, billshrink.com, myvalidas.com, or insurance.com to see how and where you can save.

For example, you could put jewelry under a blanket personal property policy. However, insuring jewelry separately may save you in the long run. Check out jewelersmutual.com, an excellent source for economical jewelry insurance, before deciding which path works best for you. Either way, you’ll need to have your jewelry appraised or show proof of how much you paid for it.

Once you’ve determined the best prices for the policies you need, make whatever phone calls are necessary. Consider a higher deductible to keep premiums low.