5 Ways to Stay out of Debt
September 28, 2020
By Rahul Iyer
If you have recently paid off your debts, or expect too soon, then the next step is to plan how you will manage your money in the future. You're probably wondering how you can stay out of debt permanently and live a more financially stable life. Well, we're here to help. We've compiled a list of 5 ways you can stay out of debt.
It's important to note that the advice on this list might not apply to everyone or every situation.
1. Only Use Credit Cards When You Have The Cash
Many people use credit cards with a "buy now, pay later" mindset, but this can lead to a lot of financial stress if you find you don't have the money at a later date. Instead, you should ensure you already have the cash if you intend to put something on a credit card. This way, you're using the credit card to your benefit by improving your credit score (with responsible use). But equally, you know you can pay it off at any point. This strategy flips the control in your favor.
2. Save For the Holidays
A 2018 study found that Americans borrowed an average of $1203 for the winter holiday season. Alarmingly, 64% of those surveyed said they didn't intend to borrow money in this period, but they ultimately did. Buying Christmas lights and decorations, food, and of course, gifts, can amount to a significant expense. But this expense isn't unexpected, after all, we do it every year. Try to put away some extra money throughout the year into a dedicated holiday fund so you don't have to rely on borrowing.
3. Make a Budget and Stick to It
Many people get into debt because they overspend in their daily lives and then find they don't have the money for big purchases or emergencies. When this happens, large purchases and emergencies go on credit cards or people take out loans to cover them. Start looking at your monthly spending and seeing exactly where your money goes. Next, figure out where you can cut down and create a budget. You should also set savings targets when you create your budget.
It may sound obvious but the most important, and the hardest part about budgeting is sticking to it. If you need some extra help, then consider getting a budgeting app.
4. Don't Try to Keep up with the Joneses
People often feel compelled to buy flashier things when they see people around them with nice things. Maybe your neighbor has an expensive new car, or your friend has an 80 Inch TV with a cinematic sound system. You can never truly know other people's financial standing, you can only know your own. Your neighbors might be living beyond their means and putting everything on credit cards, or maybe they're not. Either way, it's not your concern. Focus on living within your means and being deliberate about your purchases.
5. Prioritize Your Spending
Think about the things that are the most important to you. Do you enjoy going on vacation every year? Or is it your weekly trip to a restaurant that makes you happy? Sometimes we can't have everything, so instead, we need to prioritize the things that are most important to our wellbeing. This is something you should also factor into your budgeting.