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Ohio Department of Aging Boomerang: It all comes back to you!

Boomerang: It all comes back to you!

My Future - December 2009

Resolve to Improve Your Financial Health
Reduce Debt and Increase Savings by Shifting Spending Habits

According to USA.gov, the number one new year's resolution for Americans is to lose weight, but reducing debt and saving money come a close second and third. The average American is $8,100 in debt, according to the Federal Reserve and U.S. Census Bureau. Loans for cars, college educations, recreational vehicles and even vacations comprise nearly two-thirds of consumer debt. Another thirty-six percent of consumer debt is revolving debt, such as credit card debt. Are you ready to improve your financial health this coming year?

Start by listing your income from all sources. Next, list your monthly expenses and organize that list by payments that are debt-related (loan, credit card payments) and those that aren't (insurance premiums, utility bills, groceries, clothing and entertainment and recreation). Then, prioritize both groups by what is essential and what isn't. This way, you'll get a better understanding of how much money you actually have to spend and where you are currently spending it.

Your next challenge, then, is to find ways to reduce what you are spending on expenses that aren't debt-related so that you have more to save and apply to loans or credit card payments.

Are you ready to improve your financial health this coming year?
  • Eat out less. The average meal in a restaurant can cost 50 to 100 percent more than a comparable meal fixed at home. Use some of the money you save by eating out less to buy higher-end ingredients for cooking at home. The food will taste more like restaurant fare and still cost significantly less.
  • Use coupons. Coupons can offer big savings not just on groceries, but also on eating out, services (such as dry cleaning, carpet cleaning, furnace inspections and more) and other products. Your local newspaper is a great source, but huge bargains can be found online by signing up for special offers from manufacturers and retailers.
  • Pay less for going to work. Look not only at how you get to work, but also at what you do once you are there. In addition to savings your can realize from carpooling or public transportation, packing your lunch can save $30-40 per week over eating out at the corner lunch counter. Similarly, brewing your own coffee at home can provide significant savings over buying a cup from your local barista.
  • Analyze your bills. Carefully look at your cable TV, satellite, long-distance and mobile phone bills. How much would you save if you dropped that premium channel? Do you really need 1,500 minutes a month on your cell phone? Are you being charged for services you aren't using? Can you save by switching to another provider? Shift all money saved to your high-interest credit card payments.
  • Review your deductibles. Can you get a lower home or auto insurance premium if you accept a higher deductible? Take some of the money you save and put it in a savings account so you have it to help pay your deductible, should you need to use your coverage. Apply the rest to paying off your car loan sooner.

Once you have a little extra money, make it work for you. Pay more than the minimum amount due on your loans and credit card bills, even if it is only $5-10 more. Tell your creditors that the extra amount is to be applied to the principle balance, not the interest. This will help lower your monthly payments and improve your credit score, which can lead to lower interest rates. Also, don't be afraid to negotiate with your creditors for lower interest rates or a longer loan term. Most of them will be willing to work with you to make your payments more manageable as long as they know they are going to get their money. Don't wait until you are in trouble or in debt collection. You'll have more bargaining power when you are proactive.