Action Plan: How to Stay Debt-Free
Remember how easy it was to fall into debt? A few purchases here, a couple more
credit cards there, and the next thing you knew you owed way more than you ever
imagined you could. Once you get out of debt, don’t let it happen again! Learn from
your mistakes. You can change your financial habits and money management, if you’re
willing. Here are some words of wisdom:
Old habits vs. new credit
Kick the credit card habit. Keep only one or two cards (with the lowest interest
rates you can find) for emergencies, but pay for everything else with cash or checks.
Don’t charge things you could pay for up front. Got a big ticket item in mind? Save
up for it. And don’t let discount offers lure you into opening credit accounts you
don’t need. Sure, you might save 10% on your purchase, but if you wind up paying
interest, chances are, it will erase this small upfront savings. It’s not worth
it!
If you must charge something to a credit card, pay as much as you can toward the
very next balance, not just the minimum. Better yet, use your debit card instead
of a credit card. This way you can’t run a balance or spend more than you have in
your bank account, but you can still have the convenience of paying with plastic.
Establish an emergency fund
If you haven’t already, start an emergency fund for life’s unexpected surprises.
Remember, roofs eventually leak, clutches wear out, and pets get sick—and all it
takes is one unplanned expenditure to throw your budget into a tailspin. Set aside
whatever you can from each paycheck, then put it in an account you know you won’t
touch.
Have a vision
Once you’re done paying off debt, you’ll have no excuse not to save for your retirement.
Think Social Security (SS) is going to take care of you? Think again. Don’t count
on your SS benefits for an extravagant lifestyle. In fact, the average SS payment
right now is only $8,500 per year — are you prepared to live on that? If your employer
offers a 401(k) plan, take advantage of it. Or start an Individual Retirement Account
(IRA) on your own — or do both. It’s not difficult, and it will put some sparkle
in your golden years.
Not all debt is bad
Remember that some debt is essentially unavoidable. Very few people have the resources
to pay for a car or house in full, so most of us must make payments. What you want
to be sure of is that you don’t saddle yourself with a loan that makes it so you
have to borrow to pay your monthly bills. If you do take out any new loans, make
sure you understand how much you are paying in interest. This way you’ll better
understand the total cost of the item, with interest included. The best strategy
is to try to save up as much as possible. A substantial down payment on a car will
save you a lot of money in the long run. Putting off large purchases for a few months
to save up funds can often make a huge difference.
All of these strategies can help keep you from falling back into a debt trap. The
most important things to remember are:
- Avoid new, unnecessary debt
- Save up for the unexpected
- Plan ahead so you’re prepared for the future
- Take on new debt wisely, for the right reasons
Good luck!