Three big ways to cut expenses

These challenging economic times have meant a bit of belt tightening for most of us. If you’re in this mode, here are a few major expense items you might want to consider.

1. Insurance

Most people believe they have to carry insurance and, in most cases, that’s true. There are a few things you can do, though, to better manage your insurance cost.

Shop it. One word of caution – be sure you’re comparing apples to apples. Insurance coverage won’t do you any good if the company doesn’t have the strength to stay in business. Ask questions about their financial ratings from agencies such as Moody’s, Standard & Poor’s, and A.M. Best Company. You may also want to check sites like J.D. Power and Associates to see how customers rate their service and responsiveness. Use all of these factors to evaluate the value provided, not just the bottom line price. Also make sure the new policy includes all the critical elements covered in the old policy.

Adjust your deductibles. The deductible level that made sense when you took out the policy may not be the best answer for you now. Increasing your deductible can cut your insurance premium. Again, use wisdom here.

If you’re looking at auto insurance and you have a teenage driver, the lower deductible might be a better option since there is a higher likelihood you’ll have a claim. If you have only you and your spouse on the policy, and you’re traditionally safe drivers, you might do better to raise the deductible.

2. Mortgage rates and fees

If you own your home, these can be big money savers.

Interest rates. Depending on when you bought your home, your interest rate could be anywhere on the map. Sometimes refinancing is a good option to reduce monthly payments. Rules of thumb vary on when refinancing makes sense. Think about how long you plan to stay in your home, and then calculate your monthly savings with the new interest rate. Divide those savings into the total amount of closing costs to see how many months it will take to recoup them. If you’ll be in the home longer than that, consider refinancing.

Private mortgage insurance (PMI). If you paid less than 20 percent down on your home, you may have been required to purchase PMI. It is generally built into your monthly payment. As you make your monthly payments, your equity builds. Once it reaches 20 percent, you may be able to have the PMI removed. Rules vary, so check with your mortgage company to see what rules apply to you.

3. Credit cards

Credit cards can be very convenient, but they can cost you a lot of money if you’re not careful. Think about these issues in reducing your credit card usage costs.

Interest rates. If you have a good credit history, you may be able to lower your interest rate by changing cards or negotiating with your current provider for a lower rate. A phone call to discuss your options is a good place to start, especially if you’ve found a competing card with better rates. The credit card company may be interested enough in keeping your business that it will offer to meet the other card’s rate to keep you from moving. Of course, regardless of your rate, paying the balance every month to avoid interest charges is the best idea, if your credit card offers this interest-free period.

Rewards. Many credit cards offer rewards for your usage, redeemable for products or cash. If you’re using your credit card responsibly, this can be “found money.” If, however, you’re piling purchases on your card just to get the rewards, and you can’t pay the balance each month, you may rack up more in interest charges than the rewards will offset. Use this feature wisely, and it can put some extra money in your pocket, effectively reducing your expenses.

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