What are good resources for debt reduction for single people?
Jennifer sure packs a lot of question is one short sentence! And if my mail
is any indication she's not alone. With consumer debts reaching ever higher
levels more and more people are concerned about how to reduce their debt.
There are really two different tools you can use to reduce your debt. The first
involves managing the debt you already have. The second is to find ways to
reduce your expenses and pay off the existing debt.
Let's take first things first. How many of you know how much you owe, to who
it's owed and what the interest rate is on that debt? This is a necessary
building block in managing your debt. We'll begin by making a list of our debts.
You can use a sheet of paper or one of those PC personal finance packages. For
each debt you owe we'll need to know some information. What's the source of the
debt? Mortgage, car loans, home equity loans, student loans, mastercard, store
credit card. List them all.
In a second column put down the total amount of principal still owed. Credit
card statements will tell you the amount. For home, auto and some other loans
you might need to call the lender to get the balance due.
In the third column list the interest rate that you're paying on the loan. If
it's a floating rate, list the current percent. And finally, include a column
for comments. For instance, if there's some type of prepayment penalty.
If you haven't done this before you're going to find out that not all loans are
created equal. Some are more expensive than others. Our goal here is to identify
the most expensive debt you have. That's the loan that we'll either transfer to
a cheaper account or pay off first.
There are plenty of opportunities to 'transfer' balances from one credit card to
another (also see debt consolidation...). It's a good idea. Money that you save in interest payments can be used
to reduce your principal. One word of caution. Some card issuers are offering
low rates that jump to much higher rates after six or twelve months. If you
transfer to one of these cards make sure you're ready to move again when the
The other management tool you'll use is to pay off the highest interest rate
debt first. Suppose that you had enough money each month to pay all the account
minimums and an extra $100. Your best move would be to apply that $100 to the
account with the highest interest rate. That way the average interest rate on
your whole debt will go down a little each month and save you money.
Now for the second part of the answer. How do you get rid of the debt. There's
really only one way. That's to pay off a little each month until it's gone. To
do that you need to spend less than you make.
If you don't have a budget, you need one. You're dreaming if you think that you
can control your spending without an organized method of tracking your expenses.
And it's not that hard. Especially if you have access to a computer with some of
the budgeting software available.
Once you have a budget in place take a look at see where you spend the most.
Chances are it's for housing. According to the U.S. Statistical Abstract the
average single adult spends 33% and the single parent 37% of their expenses on
If you want to spend less you need to understand where that money goes. You
can't just refuse to pay your mortgage. But maybe you could refinance it at a
lower interest rate. Or take a look at your utility bills. If you could shave
10% off a $200 electric bill that would be $20 each month. Nothing phenomenal,
but it would help to pay that 16% credit card bill.
Obviously, it's difficult for many to save on housing. For single parents
especially, less expensive housing can often mean less safe housing. That's not
a good trade-off. There are some creative answers available. Some single parents
are taking in roommates. Nothing says that two single moms can't share one home.
Not only is there rent to be saved, there's also the possibility to reduce
Food is another expensive area. The average single parent household spent 16.6%
of their total expenses on food. Singles without children averaged 13.7%. That's
a lot of money. And much of it can be controlled. It's easy to rely on fast or
prepared foods when you're cooking for only one or two. In fact, it's hard to
cook a frugal meal in small portions. Your cheapest meal is one that's prepared
largely from scratch. That seems foolish if you're cooking small amounts.
One creative solution is a type of cooking club. Two, three or four singles
agree to meet once each month. Before they get together each is responsible for
cooking a meal and dividing it into portions for each member. Let's face it. You
probably wouldn't make lasagna for just one or two people. You'd buy it premade.
But it's really not much more expensive and doesn't take any more time to cook
for eight or ten. And if the return is three other meals that just require
reheating it's a pretty fair exchange!
Some of you guys might not be too comfortable in the kitchen. So find another
answer. Automobiles are the next major expense in anyone's budget. Just as
you're uncomfortable cooking, many single women are uncomfortable with car
maintenance and repairs. There's probably a lady in your circle of friends that
would send you home with a meal or two if you changed the oil in her car.
Nothing romantic here, just good old fashioned neighborliness.
Ultimately, there's no magic in getting out of debt. Short of an inheritance,
it's just a matter of spending less than you make and managing the resources at
your disposal. It's like any long term goal. You need to make the decision to
achieve the goal and be willing to take dozens of small individual steps on a
regular basis. If you ask anyone who's already debt free you'll find that the
journey is challenging. But the freedom earned when the last debt is paid is
well worth the effort.