Do you wish you could live without a lot of debt hanging over your head? It can be done, but it won't be easy. To stay out of debt, you must always be responsible with your money. Try the following three steps to get out of debt and stay out of debt:
- Make a spending plan. Everyone who doesn't have a lot of debt has a budget and sticks to it. Without a budget for expenses and miscellaneous costs, people overspend on things they don't need, and when things "happen" that they hadn't planned for, they have to use credit cards to make ends meet. Write down all the monthly costs you can think of. Then, make a second list of every other expense you pay for during the year, but not necessarily every month. If you get your oil changed three times a year and each one costs $20, you need to set aside $60 a year, or $5 a month, for oil changes. Once you have a full list, take your total monthly income and subtract your total monthly expenses to see what you have left over. Be sure you include savings accounts in your "expenses". A good rule of thumb is to pay yourself first. If you still have money left over, good for you! Use it to pay more on each account until everything is paid off, or put it in an IRA, 401K, or money market account with a high interest rate to help your money earn more money.
- Stay away from loans like the plague. Make all of your purchases with cash and you will never fall into the debt trap again.
- Get rid of any debt you have. This is the first thing you need to do to get out of debt. Cut up any credit cards you have in your wallet, purse, or desk drawer, and don't try to get any more or accept them. Pay your bills on time, sending as much as you can to one account while paying the minimum on all of your other accounts until the account is paid off. Do this until you have paid off all of your debt.
Look after your money.
As you get started on getting out of debt, you should be very aware of where your money is going. It's important to keep track of your spending habits for a while so you can see where you're wasting money or where you can save money without making big changes to your life. Keep a notebook where you write down everything you buy, including how much you paid for it, where you bought it, and why. Include all the bills you've paid, how much you paid, and how much you still owe. After a few months of keeping track of how you spend your money, you will be able to see exactly where it all goes. You may be surprised at how much your small purchases add up and take away from the money you could be using to pay off your debt and live a debt-free life! If you buy a cup of coffee every morning on your way to work, it could cost you $10 or more per week, or $40 per month. Brewing your own coffee at home could save you a lot of money, since a can of coffee costs about $4 and lasts about a month.
How to stay out of debt after getting better
When people get their finances back on track, one of the worst things they can do is go back to their old habits. Before they know it, they'll have racked up a few thousand dollars more in credit card debt, and they'll be in the same desperate situation where they can't make their monthly payments on time.
You don't have to carry credit cards in your wallet. Yes, it is strange to go from having several cards to none, but this is the safest way to keep from spending too much. You might want to keep one credit card in a safe place at home in case you need to use it to buy something. Think carefully about using the card, and if you can buy it with cash instead, do that. You shouldn't use a credit card for everything, and you shouldn't use it when you want to buy something you don't need but don't have enough cash to buy. If you want a luxury item, save up for it until you have enough money to buy it. If you decide after a few months that you don't need it, you've saved the money for an item you might have bought on a credit card, decided you didn't need or want it, and then had to pay back three to four times what the item was worth after interest and finance charges.
