Two or three weeks ago I was flipping channels on the TV when I came across Suze Orman as a guest on the Larry King Show. Whenever I run across Suze on the TV I usually stop for a while to see what advise she is giving to people eager to spend their money or trying to get out of debt. I was listening intently when she took a call from a 42 year old woman who was thousands of dollars in debt from a series of unexpected medical issues. The woman earned a good income but it just wasn’t enough to cover her monthly expenses and the large debt she had. The woman was desperate and just didn’t know what to do. Suze did a good job of reassuring the woman that she would make it through these tough times and said the woman needed to find ways to increase her income help pay the debt. Suze also mentioned bankruptcy as a last ditch solution. Under bankruptcy, the woman would still have to pay off the debt but the bankruptcy would provide some protection from her creditors.
What Suze didn’t mention was reducing your spending is the most effective method for increasing your available cash. Thinking back to many Suze Orman Shows I’ve seen, I’ve never heard her tell a single person to reduce their spending. Not everyone can reducing their spending. But the majority of us frequently spend money on luxury items we could easily do without. We eat out more often than we should. We take expensive yearly vacations. We buy the latest gadgets that require expensive monthly service plans. I don’t know what this woman spends her money on every month, but if she is like the rest of us she would benefit from cutting a few extras from her monthly expenditures.
The first step anyone should take when trying to figure out how to pay off that staggering debt is to look at their current monthly expenditures and find everything that can be cut. Any cash not spent on something else can be used to pay down the debt. When the debt is gone then any cash not spent on something else can be invested, increasing your net worth and, depending on the investment type, your monthly cash flow.