How To Downsize Your Debt

Ten years ago we decided to sell our home, relocate, and pay cash for a much smaller home to enable us to live debt free.  We have lived debt free for the past ten years.  But is downsizing for everyone?  Almost everyone would love to live debt free, but they never consider what it entails.  Debt free does not mean able to live expense-free.  It does not mean living on this earth free.  Nor does it mean you never owe a cent to another person.

What debt free means is to not have debt on automobiles, mortgage, or credit cards.  Life can never be completely expense free because our society is not a bartering, hunting and gathering society.  To live in our society there are expenses that must be met on a regular basis and these include paying taxes, purchasing food, fuel, and clothing.  A person may be capable of sewing their own clothes, cutting their own and family members’ hair, growing a garden and other self-sufficient talents, but there still remains taxes and fuel for the automobile as well as medical expenses.  Knowing first aid is an asset, but purchasing medical supplies and medicine requires cash.

Lets begin with how to supply the things you cannot do yourself.  First of all, to be debt free one needs to have cash flow.  That means a job or income of some sort such as a reliable trade.  You can not live indefinitely on the savings you have accumulated, you will eventually have to go to work unless you are of retirement age.

In the beginning you may be satisfied with doing without most conveniences, but eventually, as we did, you will want to upgrade.  Originally we purchased a generator to supply electricity for a washing machine.  We had a large propane tank that was filled twice a year, and used a gas refrigerator that operated with propane.  Later we wanted satellite tv, a telephone, electric and natural gas.  Once those were obtained they were expenses that arrived in the mail on a regular monthly basis.  As long as we could pay those bills, we could do what we pleased with the extra income.  .

Credit cards are helpful in emergency situations.  If you have a credit card, consider it insurance against emergencies, not a spending token.  If you have more than one credit card, pay off the balances, cut up the ones you won’t be using and throw them away.  It is important to call the credit card company and inform them of what you are doing by telling them that you want the account closed or you may be surprised when a bill arrives in the mail with an annual fee due.  Some companies will attach an annual fee to a card that is not being used.  After this happened to me, I called the company and was told the fee would be removed only if I used the card within three months.  Not wanting to use the card, I cancelled the account since I would not be debt free with an annual fee hanging over my head.

 Never use a credit card unless it is necessary.  For example, our credit card came in handy when a family member was hospitalized in a distant city.  We made frequent visits to the hospital and had to use the credit card to pay for motels while we resided there.  When the bill arrived, it was paid in full, or a good portion of the balance was paid.  Never pay the minimum amount due, or the bill will never be paid off and you will not be debt free.  Always pay double, triple or more of what the minimum payment requires until the debt is paid.

Your home may be paid for, be mortgage free, but there are repairs and upgrades you will eventually need.  If you are a handyman, electrician or plumber, you can do those things yourself.  If not, you will need cash to pay for such things as new lighting, installing a new hot water heater or furnace.

Downsizing usually means not only are you downsizing your debt, but you are also moving to a smaller home that is less expensive to maintain.  It might not be right for you if you are a collector and need extra space for your collections and hobbies.  It might not be right for you if you are just starting out in life and will one day have a larger family.  On the other hand, smaller homes are less expensive to heat and cool.  They are easy to clean and can be quite comfortable.  Taxes and insurance are much less than on a large, rambling home.

 Automobiles can also be downsized.  A car or truck with a large monthly payment can be paid off and kept for years.  The paint may fade, and the model becomes outdated, but you will be debt free.  Sometimes a person can find someone to take over the payments on an expensive vehicle, and then you can pay cash for an older model that will be just as adequate.

With today’s economy, an economical vehicle is an asset.  But don’t go to a dealer with plans of buying a new hybrid or gas saving model, because it will lose its value the minute you drive off the lot, and you will be in debt for many years.  Look around for a good used vehicle that will serve the same purpose and save on fuel.  My own car is ten years old and runs like it did the day I bought it used.  It gets 30 miles to the gallon of gas in town, and 33 miles on the highway.  When my daughter offered to trade me her newer SUV, I said fine.  Then I asked what kind of mileage she got.  No deal, I told her after hearing she gets14 miles to the gallon of gasoline.  With today’s prices on gasoline, that SUV would be a costly expense, like buying a bucket with a hole in it.

More and more people are downsizing to get out of debt. They are fearful of losing employment and are looking around for alternative methods to maintain a home.  If you have downsized to a small home that you have paid for with cash from the sale of your larger home, and have decided to drive a less costly vehicle, have cut up those credit cards, then yes, you can live debt free and will not worry about how to exist if you lose your job.  Many people are even downsizing their employment situation.  From two working partners with two paychecks, to one working partner and only one paycheck to rely on.  When one partner stays home, many expenses can be cut.  As mentioned earlier, home cooked meals can be prepared, clothes sewn at home, and bargain shopping can save money.  It takes time to shop for bargains, and that time is worth a wage.

With today’s economic situation, downsizing can be the best solution to survival.  Few people consider how to downsize, instead they consider how to maintain their current level of living by taking on an extra job or working more hours at the their current job.  If you find yourself with more debt than you can presently handle and want to work fewer hours instead of more hours, consider downsizing your home and vehicle.  This may mean moving to a different community, and when school age children are involved it may not be advise able.  Even so, there are alternatives such as home schooling.

Downsizing is a convenient way to live with less income, but it is not for everyone.  Before making a final decision think carefully.  Are all family members in agreement?  How will this impact your social activity?  Will it relieve stress?  Will it allow freedom from all debt or only partial freedom?  Take time to consider all the pros and cons before you sell your present large home and buy a modest sized cottage.