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Boost Your Savings by Cutting the Cable Cord

Every month, millions of households across the nation find themselves asking the same question… “Why are we paying so much for our cable bill?” Sound familiar? With the rate at which cable prices have been increasing it is understandable if you feel a bit uncomfortable with how much money you are spending each month to your cable provider.

Each year the average cable bill has been rising by 6%, and if it continues at the current rate the average monthly bill is going to hit $200 by the year 2020. Because of the rapid increase in prices, more and more households are making the decision to cut the cord.

After months of going back and forth on the issue, I have finally made the jump to cut the cord with my cable company. It was not an easy decision to make. There are a lot of shows that I love to watch, but I finally decided that I was simply not getting $175 worth of entertainment from my television each month, so why spend that amount of money for hundreds of channels that I never even bother to watch?

So, last week I called up Time Warner (TWX) and canceled my service. My monthly bill instantly fell from $175 a month to $55 a month. At $120 a month in savings, I basically gave myself a $1,440 annual raise.

In all fairness, there are some costs involved with cutting the cord, but they will quickly pay for themselves. I had to run out and pick up a couple Roku boxes which cost about $180 combined, and I signed up for Hulu Plus which costs $7.99 a month. I already had a Netflix membership, which also costs $7.99 a month. I may or may not get an antenna, but there are channels on Roku that give me live TV from all the major networks, so I doubt I will make that purchase.

So to review… $180 spent on two Roku boxes, and $15 a month going forward for Netflix and Hulu Plus. After 2 months the Roku boxes will pay for themselves and from that point forward I will have a $15 a month bill… still saving me over $100 a month from my previous cable bill.

You have to ask yourself, can you use an extra $100 a month? If the answer is yes, then you should look into cutting the cord.

So what to do with an extra $100 a month?

1. Pay down your credit cards: One of the biggest burdens American households face is credit card debt. Building a large credit card balance is very easy to do, but paying them off is a much different story. The stress of carrying large credit card balances can easily take over our lives, and high interest rates can make it very difficult to even make a dent in our balances once we let them get away from us. Take the extra $100 and add it to your monthly credit card balances. While an extra $100 is not going to pay off your credit card bills overnight, it will help, and every extra bit helps reduce future interest accrued on your account.

2. Pay extra mortgage principle: Your typical mortgage has a 30 year lifespan. Thirty years can seem like forever, but if you are able to put a little extra on top of your minimum payment each month you would be amazed at how much time you can knock off the end of your loan. Let's assume you have a 30 year, $100,000 mortgage with an interest rate of 4.5%. If you pay the scheduled payments each month, your loan will last 360 months with total interest paid during the 30 years of $82,406.71. Now let's assume you pay $100 extra each month. Your loan drops to 258 months and total interest paid will be $56,028.95. By paying just $100 extra a month you pay your loan off 8.5 years early, and save yourself $26,377.76 in interest payments. So ask yourself what you would rather do… pay $100 to your cable provider, or cut the cord and pay your house off 8 years early and save yourself over $26,000. To me, the answer was easy.

3. Build up your emergency fund: Most financial planners will advise you to build an emergency fund big enough to cover 6 months worth of expenses in case of an emergency. While this sounds like a smart idea, building up that sort of emergency fund is not the easiest thing in the world to do. Most households have a hard enough time as it is making it paycheck to paycheck, so setting aside money for an emergency fund is not practical. Putting aside $100 a month will help you build this emergency fund. It will not solve your problem, but it is a good start, and that is the most important thing.

4. Set up a vacation account: We all like to vacation. Not only is it fun to get away from the stress of our day-to-day lives, it is important. It helps enforce family bonds, and it helps keep us mentally sharp in our normal lives. While everyone loves to vacation, no one loves the expense that a family vacation can create. How much did you spend on your last vacation? If you have a family of 4, chances are it is going to cost you at least $1,000 to take a family vacation once you add up gas, hotels, and food. That is assuming a nice trip to the beach, or mountains. Try to figure out what a week at Disney will cost you, and you can see what it is smart to saving ahead of time for your vacation. By cutting the cord with the cable company you can build a $1,200 a year vacation fund. You deserve a good vacation, enjoying time with your family, not worrying about how you are going to pay for it.

5. Save for your child's college: One of the biggest challenges of parenthood is saving for college. The price of a college education continues to rise, and by the time your little one is ready to move out of the house and pursue his or her higher education there is no telling what the annual cost of college will be. We want the best for our children, and tell ourselves over and over again that we will do anything for them. Perhaps cutting the cord is one of the easiest things we can do to guarantee that they will not be forced to take on huge student loans in order to go to college. Will $100 a month be enough to pay for the education? Of course not, but every $100 you save now is $100 that they will not be forced to borrow when they go off to college.

As you can see, there are many things we can so to better our futures by cutting the cord today. We have listed five problems that the majority of households in America face on a daily basis that can be eased by simply cutting the cord. Yes, it is scary, and yes you are going to lose some of your favorite television shows. But ask yourself, are they really worth $100 a month. If you take a minute and think about it you will reach the same decision I reached… no it is not.

The worst thing that can happen is that you change your mind and go back to cable. And even then you are going to wind up saving yourself some money.

Consider my situation. I was paying Time Warner $175 a month for turbo internet and cable. The only pay premium channels I got were HBO. I canceled cable and lowered my internet from turbo to regular, and my bill dropped to $55. Regular is fast enough that I have not noticed any speed difference what so ever.

Two days later I got a call from a Time Warner retention agent who wanted my business back. He offered me a deal that I almost could not refuse. His offer was that if I kept my “regular” internet and could live without HBO, he would give me everything else I had before for $75 a month. Basically for just an extra $20 a month I could have everything I had before minus the HBO. It was tempting but I refused.

It upset me that I was paying $175 for so many years when I could have just been paying $75. As tempting as it was, I said no, and I feel great about it.

Point being, if you drop cable, and then decide you made a mistake they will try to get you back, and you will still wind up paying less than you do today, but I believe that once you turn in those cable boxes the freedom you feel will be more than enough to resist temptation to go back to cable.

It simply comes down to what is important to you, and what you are willing to give up in order to lower your debt and add to your bank account.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.