4) Trim Excess Spending
With your monthly budget in hand, you're now equipped to start reducing spending. Some experts will tout the need to avoid "large expenses" such as big screen TVs, new cars or big vacations. While minimizing spending splurges is obviously prudent in tougher times, it's unrealistic to think that most consumers will be able to save thousands of dollars from their monthly budget by crossing off one or two purchases (those of us who don't buy an iPod-a-month, anyway).
Generally speaking, cutting spending is a more practical matter of determining what you don't really need or need as often. For example, if you typically go out to eat two times a week, consider cutting that in half. Keep an eye on your buying habits at the grocery store, which can be an easy trap for expensive, unnecessary "impulse" buys. Augment your entertainment budget by renting music and movies from your local library. The little steps you take here and there will add up to noticeable monthly savings.
5) Minimize High Interest Debt
Unlike home or student loans which have lower interest rates, the high interest rates of credit cards make carrying a large balance a financial burden. Avoid carrying any sort of significant balance on a credit card whenever possible, you want to (at most) carry a balance that remains less than 25 percent of the maximum available credit limit.
- Have a Payment Plan Making only the minimum required payment is not a realistic strategy for resolving credit card debt. Instead, set a goal date for when you want your card paid off and budget out payments accordingly. If you have multiple cards, pay off the credit card with the highest interest rate first. Once the first card is paid off, roll the amount you were paying on that card into the payment plan for the next card with a balance, and so on.
- Pay Attention to Changes in Interest Rates Credit card companies are required to provide you notice of any changes in the terms of your contracts, but often consumers toss these notices tossed aside as "just more junk". Changes in the interest rate or minimum monthly payment can significantly affect both your payment plan and the urgency for paying off the balance. Make sure to always carefully review any correspondence from your credit card company.
- Avoid Using Credit Ideally, your credit card should only be used in the event of an emergency such as an expensive repair or unexpected medical expense. Avoid using your credit card for routine purchases such as groceries, gas or bills. If you're planning a vacation, save the necessary amount of money and use a debit card or traveler's checks when on the road.