Snowball Your Debt
J.D. Roth at Get Rich Slowly (getrichslowly.org) dug himself out from under a mountain of debt and now has cash in the bank. He did it by bucking conventional wisdom, which is to pay off the biggest debt with the highest interest rate first. This does minimize the interest you pay over the long term but offers very little motivation to stick with the program, because it's easy to feel like you're not getting anywhere and give up. Instead, Roth did what's called a "debt snowball," paying the minimum on every bill except the one with the lowest balance, which he quickly knocked out in full. Then he did the same thing again, eliminating another balance, and so on. I jumped on the bandwagon, paying off a small retail credit card lickety-split, which made me think I was succeeding. I added that monthly sum to the minimum payment on my next-smallest debt. Each time I hit another zero balance, the amount I can throw at the next debt in line gets bigger. As my snowball keeps growing, even large debts are dwindling—much to my delight.
Compute the Real Cost
According to the Bargain Babe (bargainbabe.com), if you're a minimum-amount-due type of payer, you end up shelling out 68 percent more for an item when you buy it with a credit card. This means that those 50-percent-off shoes are no bargain if you can't pay with cash. Since I loathe paying retail, I find that mentally adding 70 percent to the purchase price of something about to go on plastic is surprisingly effective at holding the line on my spending.
Know What Triggers You to Shop
When I click to open the National Spending Journal blog (blog.shoeboxed.com), these words greet me: "Often, consumers aren't aware of the underlying psychology that drives them to buy. Does the product trigger a nostalgic memory? Will it help you forget the bad day you just had?" Yes! That's me! This sort of pleasure-purchasing often happens to me at Target—I mean to grab shampoo and end up enthralled with a cappuccino machine. I know the drill—the best way to break the spell in a situation like that is to just walk away. For me, that's difficult. The next suggestion is to jot the must-have item on a list, which I tell myself I can bring shopping next time. But usually, said list looks silly when I get home and ends up in the garbage.
Shake Up Your Eating-Out Routine
As a big fan of eating out, I took note when Wise Bread (wisebread.com) suggested, "Bring your own wine." Obviously this depends on whether the restaurant allows it, so my husband and I go one better—we pair takeout from a place we like with our own bottle of red or white, and dine somewhere romantic, like in a park or next to the fire pit in our yard. Another trick we use pretty often is to hit Restaurant.com to buy gift certificates at a discount. I recently nabbed a $25 gift certificate for $10. We ate and drank in style for the cost of fast food.
Drive a Hard Bargain
At I Will Teach You to Be Rich (iwillteachyoutoberich.com), author Ramit Sethi offers no-holds-barred advice about negotiating, offering scripts for talking to everyone from your cable provider to your credit card issuers. I turned to him before I bought my Honda Fit. Even though I already considered myself a worthy adversary for any car dealer, I did learn from this master. As Sethi suggested, I began the process by going online and asking every dealership within 100 miles to e-mail me its best offer. A place an hour away offered me a lower price than one nearby, but not enough to make me want to road-trip. Off I went to my local dealer, just minutes away. Sure enough, he matched the price, which was lower than I would have dared suggest had I been a walk-in customer. The salesman tried to convince me to spend what I'd saved on a pricey maintenance package. I laughed. "It's my money," I said. "I'll keep it."
Log Spending
"Track your spending for three months," insists J. Money at Budgetsaresexy.com. True, this is the only way I can learn exactly where our money goes. What a huge eye-opener—so much so that instead of stopping at three months, I do this daily. I pay for everything with a credit or debit card and use Mint.com to trace every penny. The free program connects to all of my accounts, applies transactions as they happen to specific categories, like gas, groceries, and shopping, and compares my spending with the budgets I've set up. If I go over my allotment, I get a text message or e-mail (as does my husband) immediately, often before I'm even out of the store. (Yikes.)
Real Estate Secrets
If you pay a mortgage monthly or might list your home, keep this advice front-of-mind:
The Mortgage and Credit Diva (mortgageandcreditdiva.blogspot.com) says you can negotiate the commission you pay your real estate sales agent. "Consumer Reports conducted a survey recently of sellers," she says. "Only 46 percent tried to negotiate the fee with their real estate agents, but 71 percent of those who did were successful. You won't know if you don't try." I absolutely plan to do this if we sell our house. What do I have to lose—the respect of my real estate agent? Highly unlikely I had that anyhow.
Fivecentnickel.com helped me feel better about the $300,000 in interest my mortgage will cost over 30 years by showing me how to nearly effortlessly reduce that number. "Try making a payment every two weeks instead of once a month," he writes. "By sending in half of your monthly mortgage payment every two weeks, you end up making the equivalent of an extra payment each year." This will cut years off the life of the loan. Another way to accomplish the same thing is to overpay the mortgage by a fixed amount every month—as little as 10 percent extra does the trick. If I shave just five years off my mortgage, according to my bank's online calculator, I will save $59,000. Now that's a shopping spree!
Originally published in the July 2010 issue of Family Circle magazine, but certainly worth repeating here.
