People wonder all the time how not to get into debt. It’s a lot easier than they think and it doesn’t take extreme measures. In fact, people can still live a quality lifestyle if they allocate their money properly. Here are a few tips on how not to get into debt.
1. Lower Your Credit Limit
One trick on how not to get into debt is reducing your credit limit. Credit cards give card owners a false sense of more money than they actually have. For example, if you only have a few hundred dollars in your bank account, you might be tempted to use your credit card as your main source of purchasing power. If your credit limit is $2500, but again you only have a few hundred dollars in the bank, you will most likely spend more than what you can pay back. To avoid falling into consumer debt, lower your credit card limit so you don't spend more than what you can pay back to your credit card company.
2. Save up Your Dollars
If you’re thinking about purchasing a car, a home or returning to school then you know how costly it is. Most likely, you’ll have to take out a loan. Now, taking out loans from your bank or government can help to increase your credit score. However, if you don’t have the funds to pay back your loan you’ll reduce your credit score. For as long as possible, save as much money as you can afford to and hold off taking out a loan. It’s best to have as big of a savings account as possible to not only reduce the amount you need to borrow but to also cover any emergencies and other expenses.
3. Avoid Payday Loans
There are many financial services that offer payday loans. A payday loan, or cash advance, is when you offer a financial service proof of your employment as well as your previous paystubs. After reviewing your paperwork, the financial institute will then match the average of your paychecks and give it to you as a payday loan. However, the borrower is required to pay back the loan on the next payday. It all sounds fine and dandy if you need some money before your payday, however the interest rate is extremely high; it can even be up to 25% therefore making it hard to pay back your loan quickly. Instead of relying on a payday loan and paying high interest, budget your paychecks so your money lasts in between pay days.
It’s important to distinguish between needs and wants. "Needs" are your bills and your necessities to survive, such as food and shelter, whereas "wants" are things like accessories, cosmetics, vacations, etc... Although we would love to pamper ourselves on a regular basis, it’s important to know what you can afford and how to effectively spend your money. Not being able to distinguish your wants from your needs or always giving in to your wants can increase your chance of consumer debt.
Leave your credit and debit cards at home. Carrying plastic in your wallet makes it easier to give in to your temptations when it comes to shopping and spending. When you only have cash with you you can visibly see how much or how little money you have. Plus, where credit cards feel almost unlimited, carrying cash with you will show you how limited your budget is and make you think twice when spending money.
6. Don’t Buy What You Can’t Afford
Although the purpose of having a credit card is to help you purchase what you can’t immediately afford, try to stay away from that practice. Instead, save money and look for cheaper alternatives. For example, you may be tempted to put a new laptop on to your credit card but if you really don’t have the money, and it’s not an investment for work or school, it’s best to put off the laptop until you can afford it. Again, putting things on credit when you can’t afford to pay it back becomes a slippery slope.
The best way to know what you can and can’t afford is by creating a budget. If you don’t know how to create a budget visit a financial advisor to help you create one. Even if the financial advisor charges you a fee, I still recommend visiting one because a budget will help you invest in a financially secure future.
If I can stress anything it would be to always have a budget. But lowering your credit score and keeping your credit card at home will always help you to maintain a healthy savings account as well. How else do you avoid getting in to debt?