A Spending Freeze Can Greatly Improve Your Financial Life

Nearly everyone dreams of being debt-free and financially independent. But most American consumers carry an enormous amount of debt which is precisely what keeps them from reaching their financial goals. Instead of being a slave to debt, learn how a spending freeze can substantially increase your chances of getting rid of your debt at a much quicker pace.

What is a Spending Freeze?

A spending freeze can also be called a spending fast or a spending lock-down. No matter which term is used, this practice is basically a method of eliminating outstanding debt by curtailing all "non-necessary" spending. The time it will take you to become debt-free obviously depends on your personal financial situation. You should take into account the following factors which can seriously affect your spending freeze:

  • Your overall income
  • The total amount of outstanding debt you are carrying
  • How much spending you choose to eliminate
  • How much extra money you can make by selling unwanted/unused possessions
  • How much time you are willing to give to your spending freeze
  • Your personal decision on how or if to generate additional income

Everyone needs money for life's basic necessities such as food, clothing and shelter. But after these items, the list of what people consider "necessary" expenditures can be wildly different. One of the most important things you can do before starting a spending freeze is to truly decide that the cycle of debt which you currently find yourself in has to stop. Until you can say this with conviction, your attempts at becoming debt-free will most likely be in vain.

How to Start

If you are honestly ready to change your financial life and seriously work at becoming debt-free, here's what you need to do to start your spending freeze.

  • List all of your bills including their interest rates. Make a list of all of your bills starting with the one with the highest interest rate and ending with the one with the lowest interest rate. This will help you determine the order in which you eliminate your outstanding debt.
  • Try to negotiate a lower interest rate with your creditors. Some creditors actually do this so it never hurts to ask. Go over your payment history with them and see what they can do for you. It's worth a try.
  • Write down your financial dreams. What constitutes an ideal life for you? A different job? No job at all? Traveling the world? When are you the most happy? Writing down your thoughts about these important questions can help you focus on what you really want and what you need to do to get there.
  • Determine if your financial goals can realistically be met with the amount of debt you now have. The answer may be an uncomfortable "no". If this is the case, it is definitely time to think about making some serious changes in your life. Overwhelming debt can feel like an anchor weighing you down, leaving you with little room to maneuver when other positive opportunities arise. No one wants to have to make every decision (monetary or not) based on their precarious financial situation... it's a recipe for disaster.
  • Make the decision to be debt-free once and for all. You didn't get into debt overnight and you certainly won't get out of debt that quickly either. To be successful with a spending freeze, you will need a great amount of commitment and determination. But the results will be worth it! Be sure that you are truly ready to become debt-free before starting a spending freeze.
  • If you have a spouse or partner, encourage them to join in the effort. There's no easy way to say it- if one person is doing the spending freeze and the other person in the relationship is not, it can be a very tough road to hoe. Successfully paying off your outstanding debt will be much less difficult if both individuals are working towards the same end.
  • Choose an amount of time for your spending freeze. A year is usually a good time-frame. This allows you to get through the difficult first months (when all of your financial habits are being changed for the better) and see the rewards later on (when your debts are getting paid off).
  • Tell your friends and family about your decision to become debt-free. You've made a positive, life-changing decision so why not let everyone know? Informing your family and friends can also help keep you on track since they will know and understand what you are doing.
  • Make a list of your "wants" and "needs". For most people, the "needs" list will include life's necessities: food, utilities, rent/mortgage, perhaps a car payment. The "wants" list basically includes everything else: clothing, entertainment (movies, music, plays, etc.), dining out, gifts, and all other "discretionary" spending. Everyone has different priorities in life and consequently everyone's lists will be different.
  • Only spend money on items on the "needs" list. This is where the spending freeze gets extremely simple, but not-so-easy. If something isn't written on the "needs" lists, it doesn't get purchased. It's as easy as that (or as hard, depending on your perspective).
  • Think about what you're achieving rather than what you're not buying. Imagine the profound joy of not having any debt. Envision not being a slave to your creditors. Picture the choices you will have about so many personal issues once you don't have to consider the amount of money you owe! Financial independence can be very empowering.
  • Remember to have fun. Most people associate having a good time with spending money. But the truth is there are lots of ways to have fun that don't cost you anything. Free concerts, art festivals, walking, hiking... be resourceful and creative!
  • Start tackling your debt. At the end of the month after you have paid for all your "needs", put all the remaining money towards the bill with the highest interest rate. Just make the minimum payments on all of your other bills. Once a bill is gone, take the remaining money and start knocking down the bill with the next highest interest rate. You will continue using this method to get rid of your debt until it is completely gone.
  • Be kind to yourself. Mistakes do happen, so just keep going. Beating yourself up over a "slip up" accomplishes nothing. Get right back on track and stay focused!
  • Continue your spending freeze until the date you have decided upon. If you reach your goal of paying off all of your debt before the date you have chosen, terrific! Try to continue the spending freeze and stash the money left over each month in a savings account of some sort. Think of it as paying yourself instead of your creditors!

Once you've finished your spending freeze, take the time to look back at all you have accomplished. Chances are your financial mindset has changed dramatically. Things that you once considered "needs" were probably found to be "wants" in most cases. And you've probably discovered that the initial excitement of buying something you don't really need pales in comparison to the thrill of being debt-free!