Today’s post is from Marj, an empty-nester, wife, and mother with 3 cats who blogs over at Stashing Dollars. Marj blogs about her debt payoff journey as she prepares to make her next career move: leaving the corporate workspace or working from home. In this post, Marj shares 12 simple tips that will help you avoid debt!
Many people would not own a home or have an education if they did not take on debt.
However, credit card debt is a whole different game. Consumer debt can not only be a huge source of stress, but it can steal your dreams. Credit cards are a tool that should provide you with convenience and rewards, not years of stress. Used incorrectly, you can find yourself drowning in years of payments and thousands of dollars in interest.
A credit card can provide you with rewards or increase your monthly expenses. The choice is yours.
These 12 tips will help you avoid the credit card debt trap:
1. Live within your means
Challenge yourself to live on less than what you make. If you are a two-income household, why not try living on just one of the incomes and saving the other one?
Big bank accounts are sexy. Plan to cut your spending and grow your savings account. Keeping up with the Joneses is overrated. And just because the Joneses have the best house and cars in the neighborhood does not mean that they are not up to their eyeballs in debt.
2. Create a budget
A budget is a roadmap that you plan to follow each month for spending your money.
Your budget should include fixed expenses (mortgage, car payment, utilities, etc.) and variable expenses (transportation costs, food, and clothing, etc). Debt repayment and savings are also items that should be included each month.
A budget is your plan for successful management of your finances as well as avoiding debt. Most people who manage their money successfully have a budget.
3. Ditch the excuses
Avoid letting yourself spend unnecessarily. It may only cost $5, you may work hard and deserve it, or the interest on the account may be at 0%… But at the end of the day, it is unnecessary spending and it takes from the money you could be saving or paying towards debt.
Be deliberate in your spending and don’t try to justify buying things that are not part of the budget. If you want it, take time to consider if you really want it and then budget for it first.
4. Create an emergency fund
An emergency fund is one of the best tools for avoiding debt.
Not all expenses are part of a monthly budget. If you contribute monthly to an emergency fund, you can avoid putting unplanned expenses (car repairs, home repairs, medical bills, etc.) on a credit card because you don’t have the money. Having an emergency fund is one of the most important steps in being financially responsible.
5. Track your expenses
Knowing where your money is going will help you cut back on unnecessary spending.
Looking at my bank account and analyzing where my money was going was a real eye-opener. I realized I was spending a lot of money on eating out. I do still eat out, but I have cut back significantly.
If you pay with cash, a printable tracker or notebook will help you track your expenses. Tracking is the best ways to see where you need to make changes in your spending habits.
6. Understand how credit cards work
I worked in customer service for a bank that financed store credit cards (Victoria Secret, Lane Bryant, Dress Barn…and a million more).
I was amazed at the number of people that did not realize that using those cards required a payment. Store credit cards are a bad deal no matter how you look at it. The stores often offer a discount on your initial purchase, which is great, but the interest rate on these cards are often off the charts (27% or more).
The only way these cards should ever be used is if they are paid in full when you receive the statement. I would avoid them completely.
Major credit cards also require the balance to be paid in full each month to avoid interest charges. But what about those 0% interest rate credit card offers that come in the mail? Credit cards with introductory rates often lead to debt. The card may start out as 0% interest, but it only lasts for a while. Once that time passes, the interest rate will increase, and it can be as high as 30%.
The credit card companies anticipate that you will still have a balance when the introductory interest rate expires.
Another problem with introductory rates is if the payment is made late, the introductory rate will be canceled. Your rate will increase. If you planned on 0% for a year and you make a late payment the first month, you will now be stuck with months of interest payments you did not plan on and it could add up to hundreds of extra dollars. Carrying a balance on a credit card even if it is at 0% is a bad idea.
7. Set financial goals
Setting financial goals will help you keep your eye on the prize.
And since none of us wish for debt, looking at a goals list can be the motivation needed to keep you out of debt and striving to reach your dream.
Another thing that helps is writing something called “My Perfect Day.” Write or create a storyboard about what your perfect day would look like. Read it (or look at it) when you get the urge to spend unnecessarily.
8. Live frugally
There are a million ways to reduce expenses.
More people than ever before are opting out of cable for less expensive options, such as Netflix, Hulu, SlingTV, Amazon Prime and a whole list of others.
Buy things on sale, use coupons, look for discount codes online.
Look at your use of utilities in your home and challenge yourself to save 10% on your monthly utility bills. Can you reduce your cell phone bill?
Look at what you are spending on food. Can you reduce it?
Cutting costs is a great way to avoid debt and there are so many ways it can be done if you just review your costs.
9. Make extra money
Having a side hustle is something many people have chosen to ensure financial security.
The extra money can not only help you build a nest egg but also allows you to avoid debt as well. Having a side hustle can give you something to fall back on if your full-time job does not work out.
There is huge value in being able to create an income outside of corporate America.
10. Live “lean”
Living a lifestyle of minimalism not only helps keep your finances healthy, but it will keep you physically and mentally healthy.
Lean businesses tend to be stronger and adapt more easily to changes in the economy. Lean lives tend to be the same way.
If you have a lot of “stuff,” consider downsizing. There are lots of options for selling clothing and other household items.
Once you eliminate excess possessions, you will be amazed out how much more clearly you can create a stable financial plan for your life.
11. Make your payments on time
Making late payments will cost you money.
Credit card companies are always going to charge you a fee if you make your payment after the due date. Credit cards do not have “grace periods.” The due date is the due date. The late fees can be pricey ($35 – $50). If you are a regular offender of making late payments, these fees can add up.
When your credit record has late payments listed, it can impact your credit score leading to higher interest rates on borrowed money.
12. Review your financial plan periodically
Things change and it is up to you to make sure your budget and savings plan adapt and adjust to these changes.
If your expenses increase or your income decreases, and you don’t adjust your spending to fit these change, you can find yourself in debt very quickly.
Life events can also have a big impact on your money. If a baby is in your future or a medical treatment is necessary, your budget will need to be adjusted accordingly.
Being debt free takes being mindful of what is going on in your life and how you are managing your money.
If you have debt, it does not have to stay that way. I have seen people that make $35,000 a year live a happy life, have a nice savings account, and be completely debt-free.
And then there are others that make millions of dollars a year and end up filing bankruptcy because they are so far in over their head… They have never had to watch their spending and when their income changes or spending keeps increasing, they soon find themselves with so much debt they have no other choice but file bankruptcy.
Being debt free with savings gives you choices.
I would much rather control my spending and live simply and feel secure than have the instant gratification of buying “things.”
Start early managing your money and you can avoid debt and major financial worries. It all starts with a positive money mindset and a healthy obsession with being debt-free. Make the decision to avoid debt today!
What steps have you taken to avoid accumulating more debt?