Tips On Staying Out Of Debt

Staying out of debt is hard. Avoid debt and save yourself trouble and money. There are many steps you can take to stay debt free.

In the current economy it is much too easy for people to fall into debt. Between credit cards and bank loans it's easier than ever to get credit but it's only getting harder to pay back those debts. Unfortunately many people realize too late the perils of falling into debt. You might think being in debt is not such a bad thing but there is a price for living in debt and it's a high price. Plenty of banks and companies are willing to give you money at a high rate of interest. What are you getting for that interest? Basically nothing.

Although it does take some organization and work to keep yourself out of debt it is a lot less work than it takes to dig yourself out of a deep debt hole. The most important thing you can do is to keep good track of your finances. The first step to avoiding debt is to calculate how much money you make on a monthly basis and how much money you spend in a month. Add up all the money that comes into your household in one month. Then make a list of all your monthly bills. Make sure to include any loan payments or interest on credit cards that you pay every month. Also include all living expenses like phone, water, electricity, gas, food etc. Most bills are not the same amount every month so try to estimate your average bill. It is better to over-estimate your spending because under-estimating will give you a false idea of how far your money can go. You can always find more ways to spend money but it is hard to find more money once you've spent it. Another thing to remember is to include any bills you may pay on a semi-monthly basis. For instance if you pay for car insurance every six months, divide your bill by six to find out how much you pay on a per month basis. Once you've calculated your earnings and your expenditures compare the two.

If your spending is more than your monthly earnings this should be a big warning for you. Most people don't get into deep debt overnight, they slide into over the years until one day they realize their debt has become unmanageable. Remember that unexpected bills come along a lot more often than unexpected money so if you just ignore the spending and hope that it will all work out most likely you will just be watering your debt so that it grows. The best way to correct this situation is to reduce your monthly spending. Take a long look at all your monthly bills and see where you can cut spending. Are there any monthly services that you don't really need? Can you save money on grocery shopping with coupons? Deciding where to cut spending is a personal thing that only you and the others in your household can decide. Make sure you can get your spending below your income.



Remember debt is a relative thing. A little debt is not nearly as bad as a large debt. People are at all different financial stages so some people have more work to do than others. It can take years of work to get to be debt-free but it is well-worth the work. Lifestyle changes you make now in your spending will be compounded over the years to save you thousands of dollars just as reckless spending habits will compound a little debt into a huge debt. There are many changes you can make to improve your financial situation.

One of the most important things is to have some saved money as a buffer. If your spending and your income are about equal that is good but don't consider yourself totally safe from debt. It only takes one large, unexpected bill to put you in the hole. You may also want to review your finances and see if there is any place you can save. Try to establish a savings account or set a limit on the lowest you'll allow your checking account balance to get. This is a helpful buffer that will keep you above the water. For one thing you will not have to pay for bounced checks or checking fees if you can keep the minimum balance in your account. These are precisely the kinds of payments you want to avoid because you aren't getting anything for them. If you pay $10 a month to your bank that is $120 a year that you could have spent on something useful. Only dip into this money to keep yourself out of debt. For instance if you have a large credit card bill it is better to pay it off right away than to wait and pay all of that interest. Make sure that if you dip into your buffer money you replace that money as soon as possible.

Perhaps the most dangerous debt hazards is the credit card. Credit cards are convenient to use and fairly easy to get. You do not have to shun credit cards to avoid debt but you must keep track of them. It is usually best to use only one credit card so you don't get confused as to how much you've charged up in a month. Make sure you check on your credit card balance periodically. Most credit cards provide automated phone lines where you can check your balance. You should always be aware of how much money you've charged and compare that with how much money you have in the bank. If possible, it is best to use the credit card as though it were cash and avoid charging up more money than you have available in the bank. It is best to pay off your credit cards every month. Try not to carry a balance. If you avoid interest charges you can save thousands of dollars over the years. Remember, the money you are paying for interest doesn't get you anything. Another thing to try to avoid is service charges. For instance, some insurance companies will allow you to pay on a monthly basis for a fee. If you are able to pay the full amount up front this is a much better deal because then you are not charged for the privilege of paying your bill. Also avoid late fees by paying your bills on time as often as possible. Obviously not everyone can follow these suggestions but it just illustrates how debt tends to cause more debt whereas being debt free helps you save money.

Of course there is some debt that is practically unavoidable. For instance most people cannot pay for a car up front and almost no one can buy a house outright. Car, home, and education loans are a necessary evil. 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. Whenever you are considering getting a loan, review your monthly income and your expenditures. The amount of money that you have left over after the bills is the amount you have available for a loan. Once again it is always best to overestimate your expenditures and try to include extra money for those unforseen expenditures that come along every month. When you get a loan make sure you understand how much you are paying in interest. This will help you decide what your price range is. For instance, although a car may be advertised as costing $15,000, depending on the loan it can easily cost well over $20,000 to pay off. Try to avoid longer loans, remember if the loan is 60 months that's 5 years worth of interest. The best strategy is to try to save up for these big ticket items. A substantial down-payment on a car will save you a lot of money in the long run. The same principal can be applied to any large expenditure. It is much better to save up for a vacation than to charge it all and pay interest for the next few months. Putting off large purchases for a few months to save up funds can often make a big difference.

All of these strategies can be applied to some degree no matter what your financial situation. The most important thing to remember is that credit costs more than cash. When you keep in mind how much extra it is costing you in interest to buy something it helps you make better decisions.

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