Personal debt accumulates very fast and can easily overwhelm your personal finances. You will find several ideas available on the market which promise to save you from your personal debt. However, most of them are just debt traps that will eventually make your financial woes worse. The only way out is to reduce debts or avoid personal debt entirely, especially if you wish to retire by the age of 37.
In this article, I’m going to analyze ways of avoiding personal debt that could negatively affect your personal finances in the long run. If you, just like me, want to retire by the age of 37, you should plan your finances well. First and foremost, avoid debts to ensure that you achieve your personal finance goals. Here are the ways that will help you get out of your debt problem.
1. Differentiate Between Your Needs and Wants
Before you buy anything, consider if it is a want or need. Make sure you are honest with yourself and try to rationalize purchases. It might sound like an obvious thing, but until you do it, you cannot tackle your personal debt issues. If your feel like the item is not a necessity, then avoid buying it. Compulsive buyers find it challenging to control their spending. Therefore, they accumulate a lot of personal debts. It is important to monitor your spending by understanding that some items are wants while others are needs. Taking this step will help you avoid personal debt in the long run.
When someone talks about saving, the first thing that comes to your mind is money. The truth is that there are several cost-saving techniques you can apply in your home to cut on overhead expenses and minimize personal debt.
You can make coffee and bring it to the office instead of buying, which is more expensive. Additionally, carrying already prepared lunch from home will save you quite a few dollars. Other ways you can cut costs would be ensuring that all appliances are turned off when you don’t use them so that they don’t consume much energy.
You can spend the saved amount to pay your debts so that you clear them. That way, you avoid personal debt in the long-run and prevent strain on your finances. Saving is a culture that people should embrace if they want to avoid debts since they can spend their savings in case of an emergency, rather than borrow money to take care of themselves.
Most people who feel burdened with personal debts have issues managing their finances. If you are burdened with personal debts, learn how to budget your money to avoid these situations. To begin with, list regular expenses like groceries, utilities, insurance, mortgage, and others. You need to set aside money for these expenses every month to avoid getting into debts through missed or late payments.
If you have extra money left after paying the expenses, consider saving it. In fact, financial experts recommend saving a particular amount every month before spending on expenses. You will be shocked how discipline will help you to avoid debts and grow financially.
4. Avoid Credit Card Debt
If you have a credit card, you carry the risks of too much credit card debt. An excessive amount of that will be difficult to repay. Therefore, when using your credit cards, you need to be careful to ensure you avoid personal debt at all costs. Avoid the common mistake of using a credit card to purchase things you cannot afford. If you can’t pay cash, then you can’t afford it.
Another important thing to do to avoid debt when using credit is to pay your balance in full each month. It is important to avoid carrying a balance to the following month. Additionally, make sure you avoid cash advances. Create an emergency fund which you can use in times of need, instead of springing for the cash advance. Limit the number of credit cards if you want to avoid debts. The more credit cards you have, the more the tempted you will be to overspend. Therefore, you will end up in massive personal debts.
5. Prioritize Your Debts
You need to make a list of all your debts as well as a strategy of how you will clear them. Some people will argue that expensive debts should be paid first. However, you should consider what you stand to lose if you fail to pay a debt. You should avoid assuming that the debts with the highest interest rates are given top priority.
Priority debts are those that have dire consequences if you fail to pay. Also, keep in mind that you have to pay all your debts. Additionally, you cannot save if you have pending debts to clear. The reason is that their interest rates are still accumulating. This means you will pay an enormous amount in the long-run. Continued accumulation of interest rates means you will never be able to get out of debts. Subsequently, it will be impossible to avoid debts.
6. Live within your means
People who live within their means rarely get into debts since they only spend what they can afford without straining their finances. If you want to avoid accumulation of personal debt, you must ensure that you buy items that have the same quality but are less expensive than branded ones. It is unfortunate that most people tend to associate high prices with excellent quality. However, it doesn’t mean that you purchase inferior goods. The key here is to compare prices.
7. Avoid paying off debt with more debt
If you want to avoid personal debt entirely, avoid paying off debt with more debt. The habit will make you end up in a spiral where you owe money here, there, and everywhere. That means you will forever be in debts, all in a bid to clear one or two loans. Sometimes people consider consolidating all their debts in one to make it easier to manage. However, the truth is that you are just shifting the amount you owe around.
Therefore, consolidation is not a good idea for people who want to avoid debt. Financial experts say that people who consolidate their loans sometimes end up in a real mess. People can get a new loan from a bank or secure the loan against their home. The new loan offers a lower interest rate, which means the monthly payments reduce. However, what you don’t realize is that you will make payments, which will be done over a longer time and they are paying on interest. Therefore, to avoid personal debts, avoid debt consolidation or paying off your debts with more debt.
Massive personal debt is avoidable. Just remember that you will have to exercise self-control and discipline. What is important is being financially free rather than having all the material things you can have on credit. With these ways, individuals can avoid personal debt. Alternatively, you can consult a credit counselor or personal finance consultants to enable you to get your finances back on track.
There is no quick fix or easy solution to avoiding personal debt or getting off debt. You will need to adopt a new lifestyle concerning how you deal with your finances. Make money work for you rather than your creditors.