Getting out of debt is only half the battle. Staying out of debt is the key to ensuring your financial future and a comfortable future. Unfortunately far too many people concentrate on paying off debts rather than staying out of debt in the first place.
Staying out of debt means shifting to a pattern of behavior in which you avoid debt. Learning this behavior means a lot of patience, practice hard work and persistence. In many ways avoiding debt is like losing weight you have to learn to change your behavior.
Debt Avoidance Strategies
A good way to achieve this is to adopt new behavior patterns that are designed to avoid debt. These patterns are actually debt reduction strategies that you can make part of your life and routine. Some of these strategies are listed below:
Pay your credit card bills off completely each month. This helps you avoid a long term balance and it shows you how much you are spending. The credit card bills gives you a record of your spending that you can examine and see what you are spending money on.
If you cannot trust yourself to use a credit card responsibility seriously consider paying cash for everything or using a debit card. Research indicates that people who pay cash spend less. If you have an emergency credit card leave it locked in the drawer at home so you won’t use it when you are shopping.
Try keeping your car for at least five years or drive a used car. Car loans are debt and unlike mortgaged real estate cars usually depreciate quickly. Even if you can eliminate car payments for just a year you can save several thousand dollars.
Savings vs. Debt
Beyond changing your behavior you must save. Many people who try to pay off their debts end up deeper in debts because they use all of their extra cash to pay debts.
A good rule of thumb is to save 10% of your income and pay your expenses and debts with what is left over. Yes this contradicts what some of the financial gurus say but it makes sense.
If you have no savings you will have nothing to fall back upon in an emergency besides the old credit card. Having a lot of money in a savings eliminates the need to use credit cards or loans for emergency finance. It also allows you to make purchases without resorting to credit.
Cut Your Spending
Instead of cutting your savings or dipping into your savings account to pay debts try cutting expenses first. If they put their minds to it most people could cut several hundred or even several thousand dollars from their budgets and still live comfortably. To keep out of debt you must reach a point where your income exceeds your expenditures.
A good way to cut expenses is to look at all of your expenditures and see if there is anything you can eliminate. Look for anything that you are spending money on but are not using such as cable TV, internet, long distance phone service, landline telephones, health club memberships and vacation timeshares. Take a look at your possessions are you spending money to store items you never use or insurance for a vehicle you never drive.
Reducing expenditures increases your income so you have more money to save or to spend. Always take a look at your expenses before adding any debt to your budget.