Working For Financial Freedom

Tips for Staying Out of Debt

Welcome to Working For Financial Freedom. If this is your first visit please read about this blog. You can keep updated by subscribing by email or to my RSS feed. Thanks for visiting!

Today I get to share with you a guest post by Miranda Marquit who edits information on debt consolidation at DestroyDebt.com. Thanks to Miranda for the wonderful post!

Tips for Staying Out of Debt

It is easier stay out of debt than to get out of debt. And once you *are* out of debt, for some people it is a constant battle not to slip back into old habits. The best way to stay out of debt is to develop good habits, so that there isn’t room for the bad money habits in the future. Here are some things that you can do to develop a habit of staying out of debt:

*Know your income and your expenses, and spend less than you earn.*

This seems like common sense, but many people do not have a true idea of how much they make, and how much they are spending. Personal finance software, a monthly budget and other forms of expense tracking can help you keep tabs on what you are spending your money on. Prioritize and cut back (or make more money) so that you are spending less than you earn each month.

*Pay for the bills and the other needs first.*

Figure up your bill schedule and then plan for that first. Set aside enough money (if you can, pay all your bills as soon as you get paid or when they arrive) to cover your bills — utilities, mortgage, loans, etc. — as soon as you receive your paycheck. Also, other things that you should consider putting high on your list of priorities include:

- Retirement account.
- Emergency fund.
- Savings goals (vacation, toys, etc.).
- Groceries.
- Transportation costs.

Prioritize the rest of your expenses and your wants so that the least important are at the bottom of your list. If you don’t have the money to get to them, they don’t get funded that month.

*Be wise with credit cards.*

One of the things that helped me get my credit card spending under control was when I started deducting the charges from my checking account, rather than my credit card account balance. If I use credit card to pay for something, I actually enter the money as coming out of the checking account. Then, when the monthly statement arrives, I can easily pay off the entire balance. I get my rewards points (free ticket to Europe soon), and I don’t pay interest. Plus, taking the money from my checking account is a regular reminder that when I pay with a credit card, I’m still using my own money. It’s easy to forget that with credit cards.

Another rule we have in my house is that when we buy big ticket items that we need (like the computer I use for work), they should be paid off in two months if we use the credit card. For big ticket items that we don’t need (like a TV), we save up until we have enough to pay off the balance on the credit card after we buy it.

*Look for good deals*

This is different from looking for “cheap.” It is also different from buying something because “it’s such a bargain!” Consider your purchases (especially the large ones) from the standpoint of whether it’s a wise use of money. Some things to consider:

- Is the quality reasonable?
- How often will you use it?
- Dollar for dollar, is it a good value?
- Is it something you can wait to buy until it goes on sale?
- Do you really need it right now?

When you consider these items it can help you delay a purchase that may set off the cycle of debt. Plus, it will get you in the habit of thinking through your purchases rather than impulse buying.

If you do end up borrowing (for a car or a home or something else), shop around for the best interest rate and a loan without prepayment penalties. That way you can pay it off sooner.

Written by Miranda Marquit
DestroyDebt.com