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Step four toward getting out of debt involves looking for ways to reduce spending (so that you can pay down debt with the savings). If you have completed steps one, two, and three, you’ll have an accurate picture of what you’ve really been spending your money on and will know what your fixed expenses are.

If you figured your expenses and your income and came up short, write down the total amount that you’re short each month. Then count up the number of categories that you have listed for expenses. You may come up with something like 24 categories and a shortfall of $400/mo. Divide the total shortage amount by the number of categories. In this example, that comes out to $16.67. Next, look at every single category and try to determine how you could cut the amount you came up with (or more) from it. Typical areas to cut back in, eliminate, or ask for lower rates in are things like cell phones, home phones, internet, cable TV, dining out, entertainment, groceries, etc. Some additional areas to ask for lower rates in are car insurance, homeowner’s insurance, and renter’s insurance. (I’m not suggesting reducing coverage unless you know for a fact that you’re over-insured, but it probably won’t hurt to shop around and ask for discounts.) There are few-to-no categories that you won’t be able to reduce at least a little bit. Tackle one category per day if need be, but really search for ways to reduce it. Remember, even a dollar helps. Sometimes it’s a simple as a phone call. You might be surprised how many places say yes to “is there a way I can pay less?”. If you run across some place that isn’t willing to reduce their rates, don’t be discouraged. Try again in a few months or begin researching alternatives.

If you figured your expenses and your income and came up positive, congratulations. In this case, pick a number to challenge yourself with (possibly the additional amount you’d like to put in savings each month) and go through the same cost-cutting efforts as above. You can afford to be a little more lenient depending on how quickly you want to eliminate debt (keeping some things that others might choose to get rid of), but it still won’t hurt to try to get everything reduced. After all, wouldn’t you rather have the money for yourself than see it go to a corporation?

In either case, go through this same exercise periodically (at least once every couple of years) to be sure you aren’t missing out on additional savings. Rates and offers change, so it’s worth keeping up to date.

The next step will address ways to use the ‘found’ money you’ve accumulated in this step to pay down debt.

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