Changing the Way you Spend Will Help you Avoid Debt

Follow These 11 Tips for Avoiding Debt.

Credit cards, auto loans, student loans, personal lines of credit, mortgage payments…it’s no wonder why it’s so easy to get into debt. Credit is such a necessity when it comes to owning a house or buying a car or an education. However so many of us miss a payment, and once you miss just one it’s so easy to miss more. Then before you know it collections agencies are calling and demanding repayment.

We all know that the best way to stay out of debt is to pay our credit bills on time. Obviously that’s easier said than done, but the people that stay out of debt are the ones that follow a financial plan or budget. These are the folks that keep their bills organized and pay them before the due date so that they don’t get caught paying outrageous amounts of interest on credit. To stay on top of your credit bills, and to stay out of debt, keep the following priorities in mind:

1. Create a budget – and stick to it! I know you’ve heard it before, but you can only stay on top of credit if you plan ahead. That means set aside a certain amount of money that you know you can spend per month and think before you spend it. Credit is tempting because the act of charging seems nonchalant – you’re swiping a piece of plastic to make a purchase and you don’t see money exchanging hands at all. However you are shocked when you get that credit card bill at the end of the month. “Did I really spend that much”? You know what I’m talking about – you’re smaller purchases accumulated make one mighty big credit card bill. So try to stick to necessary purchases and buy your entertainment in cash.
   
   
2. Create an emergency fund – Living on a budget, which just means living within our means, doesn’t always go as planned. Emergencies pop up – car payments, illness or medical expenses – and suddenly you’ve gone over your monthly budget and can’t pay your mortgage. That’s why an emergency fund can really help you out when the times get tough. Just put a few dollars away a month – start with $25 and work your way up to $50. Treat your emergency fund deposit as any other necessary monthly expense. Put it in a high interest saving account and don’t touch it unless you absolutely need it. This “extra” money will come in handy when you need it most.
   
   
3. Choose your bank like you would your love partner – I know that sounds like a silly statement, your bank is not as important as your spouse or mate; however it sure is when it comes to your financial future. Don’t chose a bank that looks good at first, but at closer inspection can’t follow through with promises. What I mean by that is that they tempt customers with special short term offers that seem great – zero interest for the first 3 months and so forth. Remember your relationship with your bank will be long term so choose a bank that offers savings accounts, investments, and credit card and loan options that most suit your needs. You want a bank that will be there for the long haul. Not one that lures you in with romance and then moves onto the next customer.
   
   
4. Don’t live beyond your financial means – I know I’ve already mentioned this one in the budget tip, but I can’t stress how important it really is. Many people get caught up in the credit trap because it seems like you’re getting something for nothing every time you charge it. That’s what the credit card companies want you to think, because if you’re late on payments or miss payments that’s when they can make potentially thousands of dollars from you in interest. So live within your means and don’t spend more money then you make in a month on unnecessary items. Read our article Tips for Do It Yourself Debt Reduction for more on this.
   
   
5. Pay with cash or a debit card whenever you can – This doesn’t mean when you’re car breaks down on the side of the highway you don’t get it towed because you don’t have the cash handy. That’s an emergency. You have to teach yourself to differentiate in your mind what qualifies as a necessary and frivolous purchase. For example groceries are necessary; a night at the movies is frivolous. That doesn’t mean you stop going to the movies – it just means when you go pay in cash, and if an emergency pops up that month cut out the movie night and go when you can afford it.
   
   
6. Steer clear of impulse purchases – These are the purchases that you don’t need – new clothing when you’ve got a closet full at home or new furniture for your house when you can’t even make your mortgage payment. A budget will help you see everything that’s important and how much money you have left over to spend on impulse during the month. Small impulse purchases are ok – manicures, coffee, lunch with a friend – when they keep you in budget.
   
   
7. Avoid the "buy now, pay later" trap – You know what I mean. It’s that 72-inch plasma television set that you can have for a full year before you have to make any payments on it. The catch is that after the year you start paying abnormally high interest rates – that will double and sometimes almost triple the worth of the item. Avoid these when you can or plan to pay it off before the interest kicks in.
   
   
8. Compare prices – On everything! That means shop around to at least 3 places before making a car, appliance, trip, loan or absolutely any purchase.
   
   
9. Shop around for the lowest interest rate – This is very similar to our compare prices tip. If you must buy, pay with cash. If you must buy on credit, shop around for the lender with the best interest rate. This is your responsibility. No one is going to offer you a prime interest rate on a silver platter. Remember creditors need to make money too and they do from people who sign loans with higher than average interest rates.
   
   
10. Keep a record of all credit card purchases – This is related to budgeting because it forces you to keep tabs on all of your monthly credit purchases. If you don’t spend on unnecessary items you will be able to pre-budget your credit card bill before it arrives as well. This will help you build outstanding credit if you pay off the balance of your bills every month.
    
    
11. Always pay more when you can – By this I mean if you get a bonus or a raise, don’t go and spend it on frivolous items when you already owe a ton in credit. Put it towards paying off some of your debt. Sure treat yourself with a nice dinner, but pay in cash and put the rest down on your outstanding debts.