We started this conversation with Reduce Monthly Expenses, Part I…
With regards to paying off credit card debt, one school of thought is that credit cards with higher interest rates should be paid off first while the other school of thought suggests paying off those with the lowest balances first – sometimes referred to as the snowball method – is the way to go. From a purely financial perspective, the former is the better approach. However, there is value in the latter approach as there is a psychological lift – a real sense of progress – from paying off one card and then committing the money that was being paid on the first to the next card in line, continuing this progression until the last card is paid off. This was the approach I took and it worked well for me.
Whichever method you use, the key is to stop using the credit cards and stay committed to reducing the balances to zero while you start working your savings and investment plan.
That last point brings us to another case of differing schools of thought. One philosophy suggests that credit card debt should be paid off completely prior to committing money to investing. My belief is that while credit card debt should be under control and be on a steady decline, it does not necessarily need to be paid off completely before you develop a savings and investment plan and begin committing money to your retirement accounts. The rationale is that the sooner you establish your savings and investment accounts, get in the habit of funding them, and get in the habit of managing them the better off you will be; the sooner you can make your money start working for you through the power of compound interest.
Additional options for reducing monthly expenses include eating out less, taking advantage of coupons, utilizing a grocery store savings card, canceling magazine subscriptions, modifying telephone service, and reducing entertainment costs (e.g. rent/stream videos vice going to a movie theater). These are only some of the ways in which you can reduce your expenses. You are only limited by your imagination.
How about you SavvyReader. How did you – or how are you planning to – reduce your monthly expenses?