As I was reading posts from around the blogosphere yesterday, I came across an interesting statement on a review at Paid Twice. The author writes, “This is more than willpower for me, it is an actual lack of available funds, no matter how much I cut our expenses.”
As I’ve already shared on this blog, there are three steps to getting out of debt. First, you stop spending. Then you cut expenses. Last, but certainly not least, you increase your income.
Cutting expenses is a critical step. You have to get where you are spending less than you earn. But cutting expenses only gets you so far. You’ll never pay off debt quickly by merely cutting expenses.
Let’s say you owe $30,000 in credit cards, student loans, and car loans. And let’s say you cut your expenses and free up an extra $75 a month to pay down your debt. How long will it take to pay back your debts with that extra money?
I can’t give an exact number because interest rates are different for everybody. Let’s just say it will take a really long time. Probably 5-10 years and maybe even longer.
On the flip side, what if you increased your income by $500 a month and used 100% of it to pay down debt? How much faster would you become debt free?
Here’s the bottom line: There is a limit to how much you can reduce your expenses. But there is no limit to how much you can earn. This is why you must not only focus on reducing expenses, but also on making more money.