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With the costs of living on the rise, many Americans are finding that they are not as financially stable as they thought. With 80% of Americans currently in debt, many people are just don’t know how to drastically cut expenses and make a change that allows them to stop living paycheck to paycheck.
If you’re one of the many people who are struggling to get out of debt, it’s important to remember that you can change your situation.
And, we’ve got your back with the 7 most effective ways to cut down on your expenses so you can pay off your debt and get on with your life.
7 Ways to Drastically Cut Expenses:
1. Refinancing your car or home loan
If you’re looking to cut your expenses and jump-start your journey out of debt, refinancing a car or home loan can offer you an immediate solution.
You can refinance your loans and either lower your payments to save more each month or shorten your loan term so that you pay more each month but save on interest rates.
A homeowner can save thousands of dollars over their lifetime by getting a 15-year term loan instead of a 30-year loan. If you can make slightly higher payments each month, securing a 15-year loan could save you a large percentage of interest costs over the life of the loan.
According to Bankrate, by getting a shorter-term loan, one household can reduce their interest owed by an average of 6%. This may not seem like much, but on a house that costs $400,000, that 6% equates to a total savings of $24,000 over the life of the loan.
Switching to a longer-term loan will lower your monthly payment and allow you to retain more cash on hand for other bills or your personal savings.
With this method, you could end up spending more over the course of the loan, but you will also avoid taking a hit to your credit score by getting a reasonable payment that you can afford.
2. Lower the cost of your food
With the busy lifestyles of stressed-out working students and the frantic schedules of working professionals, many people spend much less time cooking and more time eating out or ordering delivery for their meals through Postmates, UberEats, or Grubhub-type services.
According to a Bankrate study, millennials are spending an average of $233 a month on either dine-in or take-out meals. This is significantly higher than the older generations’ spending, with the average Boomer spending around $182 a month on these types of meals.
This can add up quickly, and although these meals take up less time, they eat into your savings. Taking the time to go grocery shopping and cook at home can save you a lot of dough. Opting for cheaper, pre-made grocery store meals can be an ideal option for those used to fast food.
If you’re on a mission to drastically cut your living expenses, feed yourself by spending your money on these items instead:
- home-cooked food for multiple meals
- long-lasting food items like rice, beans, and pasta
3. Get a roommate
If you are trying to cut down on monthly expenses, put that extra room of yours to work. You can get a few hundred dollars a month for renting out even a small room in your house. You can even use sites like Airbnb to rent out space in a loft area, or even a spare couch.
Having a steady roommate can bring in hundreds of dollars a month in rent, but if you don’t want to have a constant roommate, you can choose to rent out space to travelers through Airbnb and have a higher cost per night to help cover the risk of not having consistent guests.
According to Stastia, Airbnb has grown from 29 million users in 2016 to over 38 million users as of 2018. This means that you will likely have your choice of tenant, without having to live with a roommate on a regular basis.
The average cost of a room through Airbnb is around $80 per night, according to iProperty Management. That means that you could rent out your space for only 5 nights a month, earning $400 and matching the income you would expect from a steady roommate.
4. Learn to thrift and pass on designer clothes
Fashion represents a huge cost center for many young professionals. Fast fashion is a crippling concept for your bank account and carbon footprint. But, cutting back on the designer labels and expensive brands will save you lots of money in the long run.
You’ll see some immediate savings by opting for lower-cost clothing, but you’ll also save money on water and electricity when you opt for higher quality, natural fabrics that don’t require as much washing or care.
If you aren’t ready to take on a fully eco-friendly wardrobe just yet, there are many ways to get around high prices of mainstream clothing, too. Discount stores in many shopping centers now carry several brand names for a lower price. This can be a good place to start.
According to the 2019 Resale Report, consignment and thrift stores are transforming into a hugely profitable industry with over 24 billion dollars in revenue this year alone. This trend of shopping at thrift stores can save you up to 50% on items and clothing and can end up saving you hundreds of dollars a year if you take advantage of their markdown pricing.
5. Opt-out of luxury services
Canceling luxury services is one of the fastest ways to start saving money in a big way. Getting rid of things like premium streaming services, cable, or music subscriptions will make an immediate impact on your bank account.
According to Nielson Total Audience Reports, the amount of people using cable services in the last five years has dropped by a staggering 11%. This is likely due to the lower-priced streaming services available.
This trend is likely to continue because these services represent a great alternative to traditional cable and lower monthly costs for entertainment. With Netflix streaming services, which costs around $8 a month, you can cut off the cable entirely, which, according to Consumer Reports, costs around $217 a month. That’s a savings of about $200 a month.
If you will be switching to a cheaper streaming service, give one of these options a try:
6. Use a financial health app
With the help of technology, and, more specifically, your smartphone, you can build your savings by locating areas where you can save money that you hadn’t even thought about. Apps like Trim can help you budget more effectively and discover new ways to save so you can get out of debt sooner.
Considering all areas of your finances allows you to see where you’re losing money. According to the Wall Street Survivor, 50% of Americans spend close to or more than what they bring in each month. This is likely due to people not realizing where their money is really going and failing to keep track of expenses.
Apps like Trim will help you save more, spend less, and be able to get out of debt sooner by offering a simple way to keep track of all your expenses in one place, and the ability to create a plan of attack for paying off your debt within a given time frame.
7. Sell your car
Getting to work and back is something that many people take for granted when they have a car, but many of us live in an area where we could realistically use public transportation every day instead. If you need to make drastic financial changes your in life to get out of debt, selling your car is one way to lower your monthly bills in a big way.
A car payment could be a few hundred dollars a month, but a monthly bus pass only costs between $75 and $100. If your monthly payment was $300, then you are pocketing $200 more a month that you can save and put towards paying off your debt.
According to the American Public Transportation Association, people spend 16 cents of every dollar on transportation, and 93% of that money goes towards vehicle maintenance and operation. A single household can save an average of $10,000 a year by using public forms of transportation and living with one less car.
Treat Yourself Wisely
Although you may feel like you’re in over your head when it comes to your debt, you can take steps to get your finances in order.
Whether you choose to make one, three, or all seven of these commitments, you can start saving money and get out of debt sooner by making a change today.