Debt Articles

How To Reduce Monthly Outgoings

The most important step you can take to becoming debt free is to begin by reducing your monthly outgoings. This is an important step towards debt reduction, but you cannot do this without first knowing what your monthly outgoings are. So first things first you need to list all the things that you spend money on each month.

This can be a daunting task if you are not an organized person. In our last article we wrote about how it is important to pay off debt, however you cannot truly get to grips with your finances until you have taken this step. It is important to know where your money is going. You need to know who you are paying and how much you are paying them in order to being the process down the road to successful debt reduction.

Debt Reduction Step By Debt

To begin the process of debt reduction, start by listing your monthly outgoings on a piece of paper. Better still if you are used to using the computer, then you can begin by creating a spreadsheet that will contain all the creditors you have, all the people that you pay money to on a regular (and irregular) basis.

If you don't want to use a computer, I would suggest that you get a small notebook that you can keep to hand and use this instead. In this book or on this spreadsheet, I would set out a page which lists all the monthly outgoings and one which list all quarterly and annual outgoings separately.

It is not that you are going to necessarily deal with them separately, eventually when you have gotten into your debt reduction groove, you will automatically know where everything is and it will become second nature to you.

So, you've listed all the people that you have to pay money to on a monthly basis, now add the monthly amounts against each creditor.

Things to list include:

  • Gas and Electricity supplier
  • Car expenses
  • Insurance companies
  • Water company
  • TV/Satellite/Cable/Internet
  • Mortgage/Rent
  • Child Care Provider
  • Local Council (Council Tax/Land Taxes)
This list is not exhaustive, but you know who you have to pay so add to it as necessary. One way to make sure that you have everyone listed, is to check your mail every day and add to the list as a new letter arrives from a new payee.

Average Out Your Monthly Payments

It is easy to record the amount you must pay each month, if the bill is a regular one. However if the bills change each month, (say your telephone bill fluctuates) then take the last 12 months bills and total them for the year. Then divide the yearly total by 12 to get an average and use this figure to begin with.

Remember when using averages, that you need to monitor the figure to make sure you are not under recording the actual amounts you pay each month. Perhaps a good rule of thumb is to check this figure every three months to ensure it is not too small and adjust the average accordingly.

Reduce Debt, by Reducing Monthly Outgoings

Once you are happy with the figures you have collected, it is time to examine whether there are changes you can make in your day to day that can reduce the figures that you are paying out each month. Active debt reduction means that you are continually looking for ways to make savings. This may mean that you change supplier if another has a better deal. If your electricity supplier is not giving you the best price in the market, then you should look for another supplier. Don't be afraid to change them to someone new. It is possible to use price comparison websites to check on the market rate, however be sure that the price comparison website that you use is not just promoting the supplier is is giving them the best kick-back.

Use the price comparison websites, but also check with friends and family who they use. Perhaps there is a better deal available if you pay by direct debit, or if you are a low usage customer.

Keep Recording Your Savings

When you begin your debt reduction plan, I would suggest that you keep recording the savings that you are making. If you have managed to save 10% on your electricity bill, then record that saving on your spreadsheet or in your debt management notebook. Record the percentage and the amount that you have saved.

This helps in two ways:

1. You can see how much money you have saved each month.
2. You can see how much more money you have available to put towards your debt reduction plan.

Each dollar, pound, euro you save on your regular monthly outgoings can be put towards reducing your debt overall, as that money becomes available to put towards debts that are hanging over you and making your life a misery.

Small steps, lead to big savings later down the line. It takes time, but it is achievable.

Waste Increases Costs

Wasting resources that you use, increases the costs. You are effectively paying for stuff you don't use or throw away. Debt management is all about reducing the amount of money you pay for the things that you use or the things that you buy.

Managing waste, helps to reduce the costs of the things that you buy, so look at this area to see where you can achieve savings, and therefore use the savings you have accrued in your debt reduction plan.