Do you often struggle with debt or find yourself sinking deeper into it with each passing year? At least 77 percent of American households have at least some type of debt, and the average amount per adult is $58,604.
Debt is something that can certainly keep you from reaching financial freedom. As long as you’re obligated to hand your hard-earned money over to someone else instead of keeping it for yourself, you’ll never truly be in control of your life.
The good news is that it doesn’t always have to be this way. Here are seven great ways how to keep yourself out of debt and get back in the driver’s seat with your finances.
1. Change Your Mindset
It’s perfectly natural to have “wants”. But you can’t buy everything, especially if you’re on a fixed income or have more pressing financial goals.
This is why Lily Will from NiaWigs reminds you to focus on your needs instead. Remember that there is always room in your budget to cut back on wasteful spending habits. This could be as simple as going to your favorite restaurant only once per week or limiting your online shopping to once per month.
The better you’re able to differentiate between a want and a need, the easier time you’ll have to keep your spending at bay and decrease your chances of going into debt.
2. Opt Out of Promotional Emails
Marketing tactics over the years have gotten very clever at reaching their intended target audiences. It’s not an accident that when you Google a topic or shop online that you suddenly start seeing ads for similar items everywhere you look on the Internet.
These are the tricks that can lead us to spontaneously shop or crave things we don’t need. But if you can implement the old “out of sight, out of mind” trick, then you can stop them from even reaching you.
Start by unsubscribing from promos that are sent right to your email. Usually, there is a small link at the bottom that says “unsubscribe” and clicking this is all it takes to stop having your inbox bombarded with advertisements.
Another thing you can do is to change the cookie setting on your web browser or phone. “Cookies” are the tracking data used by companies to monitor what sites you visit and what your shopping interests may be. If you don’t give marketers access to this data, then the ads you’ll be shown will be much less relevant and appealing to you.
3. Stop Buying Things on Credit
The credit card industry has made it way too easy to swipe, tap, or click every time you want something. To avoid this slippery slope, make a promise to yourself not to buy anything else with credit.
Instead, try paying for things using only cash over the next 30 days. Most people are surprised by this challenge because it makes them see firsthand how much money they’re actually parting with. It also forces them to use only the cash they have instead of money that’s effectively being lent to them through a credit card.
You can even take this a step further by doing what’s known as “freezing your credit”. That’s when you block access to your credit reports. That way when someone tries to pull your credit history (like a bank or credit card), they won’t be able to and the credit application will be automatically rejected.
For more information about how credit freezing works, check out this resource here.
4. Keep Up Your Credit Score
Speaking of your credit, another good way to keep yourself out of debt is to maintain an excellent credit score. Rachel Davis from SoulFactors says, “A strong credit score can be used for purposes other than qualifying you for low-interest loans and credit cards. It can help you to save money on cable TV, cell phone services, and insurance policies.”
To check your FICO score for free, sign up with Experian. Experian has a free credit monitoring service that tells you your credit score as well as gives tips on how to improve it.
If your credit score seems less than ideal, make a plan to start boosting it. This can be done by catching up on any past-due payments and settling any significant credit card balances. It may take months to see a change, but it will all be worth it in the long run.
5. Build Your Emergency Fund
No one ever plans on getting into debt. Yet many people find themselves there after something unexpected happens like a sudden job loss or accident. With no savings to turn to, they have no choice but to rack up a balance on their credit cards or borrow against their life savings.
That’s why it’s so important and strongly recommended that you have an emergency fund. Aim to have at least 3 to 6 months’ worth of your living expenses saved up, in cash, and ready to use at a moment’s notice. You can’t stop accidents from happening, but at least you can create a financial buffer that can act as an insurance policy.
6. Refinance Your Debt
If you’re already in debt, there’s no reason to be stuck there forever. Jonathan Merry from BanklessTimes says that “Debt refinancing to a reasonable interest rate can save you hundreds of dollars in interest while also allowing you to pay off your debt faster.”
There are many ways to do this. Conventional loans like mortgages, vehicle loans, personal loans, and student loans can all be refinanced. You might also want to consider transferring credit card debt to a balance transfer if you do have credit card debt. These cards provide a zero-percent APR for a set time, usually between 6 and 18 months.
7. Budget Your Money
The number one way that anyone can keep themselves from slipping into debt is to make a plan for how they’ll spend their money. Therefore, if you haven’t already, you’ll need to start budgeting.
Shiv Gupta from Incrementors recommends starting the process by making a list of your recurring monthly bills—rent, insurance, garbage collection, cable, childcare, public transportation, etc. After that, write down how much you bring home each month. Include the amount of your monthly debt payback plan and calculate how much is left.
How do you know if you’re spending too much in one category or another? You may want to adopt the 50/30/20 system. This was something that was popularized by Senator Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan”.
To sum it up, the 50/30/20 system says that you should divide up your income by spending:
- 50% on essentials like housing, food, utilities, etc.
- 30% on wants like eating out at restaurants
- 20% for savings and extra payments towards your debts
If you’ve never budgeted before, then a simple way to get set up and automate your progress is to use an app like Buxfer. Buxfer connects to your bank and credit cards so that all of your purchases are tracked in real-time. From there, you can see if your spending exceeds any of your pre-defined category limits and if any adjustments are needed.
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