When I changed jobs a few years back, I also took a very large pay cut. Having earned a very good income for many years, I soon found myself swimming in debt and devoid of savings as I had not been able to adjust my lifestyle to my new lower income. After learning several ways to curb my spending, I still had the daunting task of dealing with the debt. I found I could live within my means and service my debts, but I could not reduce them.
First, I approached the bank. The bank is not your enemy if you are upfront with them. I owned my house (with a reasonable mortgage) and had been able to keep my credit rating in good shape so I was not too surprised when they were happy to help me. I applied for a new low interest credit card to consolidate all previous cards. It was cheaper than a standard consolidation loan and it still afforded me the flexibility to pay more or just the minimum each month. I took this one step further. My banker estimated that I was saving about $300 per month in interest, so I increased my mortgage payment by $100 each month, set up retirement savings plan contribution of $100 per month and set up an automatic payment against the new credit card of $100 per month.
Then the banker changed my mortgage payments from monthly to every two weeks to coincide with payday. This has the effect of making one whole extra mortgage payment each year which is applied directly to the principal. Because I had only a few years left on my mortgage, these extra measures meant I could expect to own my house free and clear within two years.
My banker looked at my insurance portfolio. I had my mortgage balance insured at a cost of $35.00 per month. A few phone calls to some outside insurance agents and I discovered that I could get a better and bigger policy for $35.00 per month elsewhere that even had a small savings component.
Next, at my banker's prompting, I looked at my personal assets. As it turned out, she was right. I had quite an inventory of stuff that was of value but not particularly important to me. I arranged with some friends and family to consolidate items and we hired an auctioneer, instead of a garage sale, to get rid of it. This little exercise was not only fun and cleansing but earned me $3300 after paying the auctioneer. This money was used to purchase a good used car and my leased car was returned, saving me $479 per month. I allocated $150 per month some of this savings for incidental car repairs to the used car and still had an extra $329.
I directed $200 into a new account for vacations and holiday shopping and the balance of $129 was reapplied back to my credit card balance. At the end of the year, I had paid off about half of my original credit card debt of $16,000, and reduced the remaining life of my mortgage to 2 years. Surprisingly, my cheap used Toyota Corolla did not cost me anything in repairs and at the end of the year I decided to apply the money I had stashed away against the credit card debt instead.
By the end of the following year, I was debt free, including my mortgage. The best part about this learning experience was that if aside from the auction proceeds, this was all done by reviewing my current spending and reallocating everything in a more appropriate manner.
Do not be afraid to let your banker review your financial situation. Another set of eyes can see things completely different and if you are open minded enough to let them help, you can be pleasantly surprised.