How To Cut Expenses When You Have Financial Troubles

This is article four of Part One of the “Conquering Debt Series.” Read article three of Part One here.

If you want to cut your expenses, it is essential, above all, that you understand what your choices are, how you could change your spending habits and the consequences of your decisions.

You will find a lot of advice about how to cut your expenses, but you need to keep in mind that this advice may be helpful, but it will not work for everyone. Reducing your costs is not easy. It takes a lot of hard work and commitment.

Work together with your family and make sure everyone in your household understands the situation so you can all work together to make it better.

Before I get into some options on how you can cut your expenses, I am going to ask you to put away the credit cards, at least for awhile. If you must need one, keep it only for emergencies.

Since everyone's life is so drastically different, it would be impossible for me to list every way you can cut costs. I will present a few possibilities that you should consider. Regardless of what strategy you choose to pursue, you should always be realistic while also making a serious commitment to reducing your costs.

Here are some common, well-known ways to reduce your expenses:

1) Save money by spending less during the winter holidays. You know you will want to buy some gifts, but you first need to understand how much you have spent in the past to see if you have areas where you can save money in the future.

For example, can you work together with your family to come up with an agreement that you will only buy gifts for the children, or that you will limit the amount you spend on gifts to a certain amount per person?

• Read: How to Lower Your Child’s Christmas Present Expectations

2) Food is another great example. If you are not budgeting correctly, you probably don't realize how much money you are spending on food. You can save money on food in all kinds of ways:

• Use coupons to save money on products you would typically buy.
• Shop at different stores to get the best price.
• Plan meals ahead of time using $5 Meal Plans, instead of waiting until you get to the grocery store.
• Try not shop when you are hungry.
• Shop without the kids if possible.
• Skip the name brands and head for the generics.
• Eat at home more.
• Pack a lunch for school or work rather than eating out.
• Make coffee at home or the office.

AVOID PRESSURE-RELATED SHOPPING

If you are once like I was, you might respond to anxiety or financial pressures by going shopping, buying items you really don't need, or overspending.

Not only will this dig you further in the hole, but some types of spending for unnecessary items using cash advances on your credit card can also lead to problems if you later decide to file for bankruptcy (an option I hope you never have to pursue). Running up your credit cards knowing that you can never pay them back will only lead to more problems.

The one thing that helped my uncontrollable spending was thinking about what influenced by decisions to shop and what I was buying.

It's not uncommon for people to be affected by the views of their friends, family, neighbors, and others. We all know that advertising and marketing executives know how to play on your emotions when trying to get you to buy something.

Try to resist the urge to spend unnecessarily by pausing before you buy. This is known as creating a “cooling off period” or “time out” before you spend money.

In some cases, you spend too much not because you are going on a crazy shopping spree but because you are unable to figure out the true cost of your purchases. It can be tough to understand these costs, mainly if you are using credit to buy something (which is the reason I asked for you to put the credit cards away).

• Read: I Stopped Trying to Be Perfect and My Budget Thanked Me for It

AVOID RENT-TO-OWN

When you use rent-to-own, you are supposedly renting a property for a period until you qualify for ownership. Mainly, if you can't be eligible for credit, you have use of an item while it's being purchased.

I want to yell it from the rooftops “DON'T USE RENT-TO-OWN!!”

There are two gigantic problems with rent-to-own deals.

First, it's crazy expensive and is often much more than the cash price. Here is an example:

Let's say you rent a 36-inch TV that has a $300 value. You pay $16 per week for 52 weeks. That's $832. $16 a week doesn't seem too bad, right? The value of the 36-inch TV was $300, but you are now paying interest which is 254% on an annual basis. That's $532.

So to recap, your TV had a $300 value, but you just paid $1,364 ($16 a week plus interest). To make things even worse, you might have bought a USED TV that's only worth $150!

Rent-to-Own deals are usually great for sellers but horrible for buyers. Be patient and save your money instead!Click To Tweet

The second problem with rent-to-own occurs when you can't keep up with the payment arrangements. If you miss even one payment, the item can be repossessed. You lose the benefits of any payments you have made toward owning the property, which means the more you have paid, the more you have to lose.

The best way to buy furniture, appliances, or electronics is by saving your money and pay cash (and use Rakuten to get cash back). Sell something you don't need to buy something you do. Shop for the best possible cash price and the best possible interest rate.

Check to see if the store has a layaway policy that might work for you. There are laws in most states that require the seller to give you information in any layaway agreement about the items you are purchasing, the cash price and down payment, the period during which the offer will be held open, and any other relevant information.

• Read: My Worst Money Mistakes – The Money Drainers You Need To Avoid

REAL ESTATE TAX REDUCTIONS

If you own a home, many communities have a variety of real estate tax abatements, deferrals, and hardship repayment plans. Most reductions are for older homeowners, and many have a deferral process for people facing financial hardship. Less than half of those eligible take advantage of available real estate tax reductions.

UTILITY CONSERVATION MEASURES

You might be paying too much if you pay for your own utilities. Look into utility conservation assistance programs. These can lower your utility costs by one-half to one-third.

Also, if you are in a state where you can change your power supplier, check out ElectricityRates.com.

• Read: 30+ Ways to Help You Save More Money

REDUCE YOUR TELEPHONE EXPENSES

Look into group plans if more than one person in your family has telephone service. You may also want to change your local billing method or comparison-shop among competing companies for long-distance services. The types of calls you make and how you use your phone can significantly affect what kind of plan works best for you.

Ready to do some comparison shopping?  Consider checking out these companies:

• Mint Mobile
• Republic Wireless
• Tello Mobile

RE-EVALUATE YOUR HOMEOWNER'S INSURANCE NEEDS

Homeowner's insurance is an area where a lot of people overspend. If your property value has decreased, or if you are insuring for an amount which includes the cost of the land your home is on, you are paying too much for your homeowner's insurance. Consider eliminating unnecessary coverages or applying for special rate programs (such as reductions for using a smoke detector).

• Resource: Use Gabi to shop homeowners insurance online.

CANCEL UNNECESSARY PRIVATE MORTGAGE INSURANCE

Private mortgage insurance (PMI) is usually required if the down payment on the loan you used to purchase your house was less than 20% of the sale price. The insurance is used to protect the lender if you default on the loan.

Once you have more than 20% equity in your property, there is no longer any need for the PMI, and it should be canceled.

A 1998 law requires automatic cancellation of your PMI policy when you first owe less than 78% of the original value of the property. This applies to loans made after July 1, 1999. Make sure to check with your lender about canceling your PMI if you qualify.

• Read: A Simple Way To Reduce Your Mortgage Payments

PUBLIC TRANSPORTATION VERSUS DRIVING

There is no doubt that owning a car can be very expensive. Between car payments, gas, repairs, and insurance, owning a car in some communities can be as expensive as a home. If you can get by without a vehicle temporarily or permanently, you may find that you can save hundreds of dollars a month. If you have two cars, consider whether your family can get by with just one.

• Want more ways to cut expenses? Read 30+ Ways to Save More Money.

Are there other ways your family has cut costs? Help other readers learn about new ideas on how to reduce expenses by telling me about them in the comments below!