It's just one of those things that happens without your notice, or may even feel as if it's out of your control. However, staying out of debt is possible. Follow these strategies to avoid falling into a hole of debt.
- If you can't afford it without a credit card, don't buy it. One of the most dangerous approaches to having a credit card is living under the illusion that you can afford things you actually do not have the money to afford. One good rule to live by is if you can't pay for something in cash, then you can't afford it with a card.
- Have a fallback emergency fund. Emergency savings are very important for those “just-in-case” situations. Best practice when trying to establish an emergency savings is to have at least 6-month of your salary saved up. This will be something to cover your expenses if you lose your job, have an injury that prevents you from working, or for when you need money for an unexpected, but necessary, cost.
- Pay off your credit card balances in full. The best way to keep your spending under control is to pay your credit card balance as you go. So if you make a purchase with your credit card, say to earn rewards, send your payment the next day before life gets in the way.
- Cut-out the wants, focus on the needs. There's always room in your personal budget to cut out unnecessary spending habits. This could be going to “Taco Tuesday” at your favorite restaurant only once a month, or cutting down on your online shopping. The more you shave away the wants and spend only on the needs the better your finances will be.
- Everything is better with a budget. By budgeting out your monthly expenses you can better track where your money is going and where you can afford to spend it. Every month, parcel out how much to put in savings, your 401(k), and how much extra you have left to spend on the necessities. So if the time ever comes where you need to do a major cut down of your expenses you will know exactly what to cut. Handy online tools, like Money Manager, can help you with a budget automate some of the budgeting process for you.
- Do not use your credit card for cash advances. If you need to use your credit card in order to have cash on hand, that is a sign that you are abusing your finances. Not only is the APR higher than regular purchases, but you'll likely also be charged a fee.
- Limit the number of cards you have. Multiple credit cards mean multiple payments and multiple cases of tacked on interest. This is a setup for the eventual need of debt consolidation if you cannot handle using the cards responsibly. The more charges accumulated on each card means more room to lose track of your spending and payments.
- Master sheet of expenses. Be sure to keep track of your expenses in a sheet that you are able to update on a month-to-month basis. That way if you have multiple accounts and cards you can ensure that you make full payments on all of them at the appropriate time. Money Manager can help you get a full picture of your finances - even accounts, credit cards, loans, and investment accounts at multiple financial institutions.
- In case of pay increases. If the occasion arises where you receive a pay increase, live off the lower wage that you had before and store the extra funds in savings. After all, you've managed to make it so far off your previous wage, put the new funds in a place where they will work harder for you.
- Collect coupons to save cash. Groceries fall under a category of “must-have” when it comes to your budget. By using coupons to minimize the cash you have to use on those needs it will free up extra money that was inaccessible before. Stashing away the extra money will build you a bigger cushion against debt.
The hardest part in trying to avoid debt is limiting yourself. Spending has become one of the most popular temptations in today's society. Through these strategies you can cut-down on potential debt all the while still having room left in your budget for yourself.
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