I can’t wait to become Debt free. Seriously.
I don’t feel this way because I am convinced a giant disco ball will drop down in the middle of my living room when I make my final debt payment, nor am I excited to go out and treat myself to a nice dinner to celebrate.
Those experiences would be great (especially the disco party), but I am more eager to become debt free so I can continue my journey toward achieving a better life.
I view Money as a tool to help me achieve the life I want, and debt is an obstacle that has been preventing me from getting there.
It’s no secret that debt can hold you back tremendously. The only thing that’s worse for your finances aside from being in debt is getting back into debt after you’ve paid your debt off.
It’s not uncommon to get caught up in a damaging debt cycle. To break that cycle and stay out of debt for good, keep these helpful tips and strategies in mind.
Build Up Your Emergency Fund
Having an emergency fund is a key defense against debt. If you have savings to fall back on, there’s less of a chance that you will go into debt when an unexpected expense pops up.
Most financial experts recommend having several months of expenses saved up in your Emergency Fund.
When you’re paying off debt, saving up lots of money won’t be likely since ideally, you might want to use all your extra money to put toward your debt.
Saving a small emergency fund while you’re paying off debt is perfectly fine, but once you become debt free, you should start increasing the balance of your emergency fund ASAP.
It’s best to just take the extra money you were throwing toward your debt and put it in your emergency fund for a few months until you reach an amount you feel comfortable with.
Get Rid of Credit Cards You Don’t Use
Paying off a significant amount of credit card debt may prompt you to want to steer clear of using credit cards for a while, and there’s nothing wrong with that. I would even recommend going so far as to cut up the credit cards you no longer use or need.
If you want to close a few of your accounts, you can, but keep in mind that once you close an account, your credit score may decrease temporarily because your payment history on that account will be deleted.
If you are in the process of building your credit, you can always keep the account open and just cut the card up so you aren’t tempted to use it. That way, your credit line will still be open (along with your credit limit), but you won’t have a credit card bill to pay each month because your balance will be $0.
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Stick to a Budget
If you are afraid that you may overspend and go back into debt, make sure you create a realistic budget and stick to it. Your budget doesn’t have to be super formal. You can simply list out your expenses and spending limits for certain categories to help you stay on track.
You can track your spending with free tools like Mint.com to make sure you are’t going over your budget each month. The more you budget, the better you will be at sticking to your predetermined spending plan. After a while, you may not even need a budget once you tone down your spending habits.
Earn More Money
If you’ve been in debt before, that means you’ve spent more than you earned at one time or another. An effective way to prevent this problem is to earn more money. If your needs have changed or increased, you may need to get a high-paying job or start a side hustle to bring in more money.
If you want to take a vacation, there’s nothing wrong with that, but you shouldn’t have to go into debt to bring that goal to fruition. You can always pick up an extra job or side gig to earn more money to contribute to a travel fund so you can pay for the experience in cash.
Earning more money will help you live on less than your income, allowing you to save more money. In addition to your emergency fund, it’s not a bad idea to have a cash buffer in your checking account just in case your budget fails and your expenses end up being more than you expected for the month.
Stop Spending and Stay Busy
On the flip side of earning more money, you also need to stop spending money, which is probably the simpler option. Try having a few no-spend weeks or no-spend weekends every now and then to reign in your spending.
Limit your impulse purchases by avoiding certain spending triggers and set expectations with others so they don’t expect you to spend money on certain things.
One rule my husband and I made a while ago was to stop exchanging gifts so much. We only exchange gifts for birthdays and Christmas, but otherwise, we both agreed to save our money and focus on enjoying our time together.
One of the things that has helped me spend less money overall is staying busy. If you have frugal hobbies, like to exercise, or favor any free activities in your area, you can save a ton of money by staying busy that way.
Instead of going to the mall or out to dinner, you can ride bikes in your neighborhood or go hiking, then finish off the evening making dinner with friends at your place and catching a movie on Netflix.
Home projects also keep me busy. Right now I am focusing on decluttering my home so it not only keeps me busy and motivated, but it also reminds me that I have no need for extra stuff at this time and I shouldn’t be buying anything new.
If you want to be debt free once and for all, you’ll need to stay motivated, gain control over your spending, and make sure you have enough savings in the bank.
How do you avoid accumulating more debt? Have you gotten out of debt only to fall into it again, or have you been able to stay debt free?