Learning how to avoid debt can be one of the single biggest ways to save money. Debt is a budget killer. Interest payments are expensive and will senselessly eat your cash at exorbitant rates.
Current credit card rates worldwide range from an average of 12% to over 30% (and that is not counting countries like Brazil that clock in at a huge 120%). Store and gas cards can be even more. (I am holding off talking about mortgage payments here, as that is a topic for another post).
With rates like these, debt accumulation can quickly become a viscous self-fulfilling cycle. High interest payments beget more debt which leads to higher interest payments and so on and so forth. Soon you are paying nothing but your interest payments and your principle balance can take years, even decades to pay off.
Nightmare Debt Scenarios
I have seen this type of nightmare scenario first hand, both with my personal financial planning clients and, closer to home, with my ex-wife. She was a credit card junkie. She just could not stop using her credit cards. She could not stop that is until all of her cards reached their limits. Eventually she declared bankruptcy. It was not pleasant.
If you don’t have debt, stay away from it. If you are already in debt, pay it off as quickly as you can. Do the difficult. Make sacrifices. But eliminate that debt. You will save so much money if you do.
If you are seriously in debt and are having trouble solving the problem on your own, you might want to consider the help of a debt consultant or debt consolidation specialist. But be wary in your choice. The industry is rife with fraud. More, the agencies you go to are often owned by the very banks and credit cards you are in debt to. Needless to say, such an agency will rarely have our best interests in mind.
Avoid Debt – Make a Budget
So how do you avoid debt? You make a budget! You make a budget and you stick to the budget!
When making that budget it is very important that you create an emergency fund. Emergencies do happen. They are a part of life. It is often an emergency that creates the debt problem in the first place.
Pay Yourself First
I used to always advise all of my clients to pay themselves first (at least the clients who were not in debt). Create a budget and take, say, 10% off the top of your net income and pay it to yourselves. You should pay yourself straight into an emergency fund savings account. When you have six months’ worth of living expenses in that emergency fund account, you can think about starting to use that payment to yourself for something a little more fun.
Can’t afford 10%? Then make it 5% or 3%. The important part is that you have a budget, that the budget provides for an emergency fund and that that part of the budget is funded.
A Quick Easy Way to Save
With times being as difficult as they are, you might not be able to save much quickly. Here is a quick money saving tip that many have used successfully. Don’t spend your coins. At the end of each day empty your pockets into a glass jar. The glass jar should only be for deposits, not withdrawals. At the end of every month count how much you have saved and feel really good about taking a big first step.
If you are already in debt, you really need to pay off that debt. Until you do, you are spending way more money than you need to be. To be clear, to save money, pay off your debt first. And of course, don’t start charging again, whatever you do.
A good budget is going to save you money. Not only is it going to allow you to keep out of debt, it is also going to let you plan for your financial future. This type of planning is another great way to save money.
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