We have all owed money at some point, but the credit that i talk about most is persistent debt. And that is what i want to talk about. If you are lucky enough to escape the circle of owing money, then it is imperative that you remain outside that circle. We took a look at how to stay out of debt.
What Is Too Much Debt?
You will almost certainly be in debt at some point in your life. But how do you tell if you’ve gotten yourself into too much debt? Your annual debt payments should ideally be no more than 20% of your annual take-home income, including auto payments, credit cards, and bank loans. (This 20% debt limit does not include rent or mortgage payments, which can add up to 30% on their own.)
Anyway, this article is more interested in what to do once you reach your ultimate goal – escaping debt altogether!
How To Stay Out Of Debt – First Off
The most difficult phase probably comes in the immediate period after you become debt free. Because what you should never do is treat yourself as a reward, and slip back into debt immediately! You have to be disciplined for a bit longer, until you have the money with which to spend on treats, and holidays etc.
Cut Up Your Credit Cards
So a key to not going back into debt is to remove temptation. So cut up your cards. You may need to keep the card numbers, by way of bills or statements as you may need to refer to them. But what you cannot do is start spending on them, unless you have absolute confidence that you will make repayments within a month, thus not attracting interest charges.
If Struggling – A Period Of Abstinence
I did this whilst in debt too, and it is a necessary evil sometimes when money is short. The routine is this – i simply decide that for a couple of weeks or so, i am not going to spend any money pasty the essentials in life. No going out, no treats, just the basics. This instantly saves me at least a couple of hundred pounds, and takes the pressure off. It may not be fun, but it is necessary. And it may help to have a nice night out at the end of it, so you have a goal, and something to look forward to after the “abstinence”.
Benefits of Being Debt-Free
Debt can deplete your financial resources. You’ll have more money to spend on items you want or enjoy once you’ve paid off credit and you won’t have to worry about interest payments.
Mismanagement of what you owe might result in a poor credit rating. If you’re applying for a job or trying to get a home loan, this can hurt your chances. When it comes to significant purchases, prudent debt management can place you in a strong financial position.
Being in the red is a difficult situation to be in. It can put a burden on family connections and may have an impact on your job. In other words, becoming debt-free or paying offwhat you owe may make life easier.
How To Stay Out Of Debt – Budgeting
Examine your income and expenses to determine if there are any areas where you may save money. A budget, no matter how basic, can help you avoid overspending, and once you’ve mastered it, it can truly pay off.
It can also help you remain on top of your finances, which means you’ll be less likely to be caught off guard by unexpected expenses and will be in a better position to improve your credit rating.
Maintain A Healthy Credit Score
A strong credit score can save you money on anything from loan and credit card interest rates to cable TV, cell phone contracts, and insurance policies. (You can check your credit status for free on Credit.com by seeing two of your scores, which are updated every 14 days.)
If your credit scores are now excellent, you can keep them that way by paying all of your bills on time, keeping your debt low, and opening as many credit accounts as you can afford. If your credit is in bad shape, you can boost your scores by paying off large credit card amounts, reducing new credit inquiries, and disputing any credit report inaccuracies.
