Debt is a part of our way of life. We incur debt whenever we swipe our credit cards for every purchase we make, get a student loan to pay for college education, take out a mortgage for our dream house, the list goes on.
Life in debt, however, is a sad reality that millions of Americans are facing right now. A survey reveals that millennials are putting off major life goals such as buying a home, saving for retirement, and even getting married because of debt.
The good news is that life doesn’t have to stop due to financial setbacks and it is possible to live a debt-free life, even if you are deep in debt right now. Here’s a practical guide on how to live a debt-free life.
1. Pay off your credit card bills in full.
Did you know that credit card debt is possibly the worst kind of debt anyone could ever have? It’s easy to rack up credit card debt, but it also gets to a point where it gets so hard to pay it all off.
Every cardholder thinks that they are doing themselves and their credit score a favor by paying the minimum amount religiously every month. But as you continue to swipe your plastics with every purchase that you make, you also continue to amass debt. In just a few months, you will see its impact on your credit score. Remember, 30% of your credit score is determined by how much debt you have under your name, credit card debt included.
So, how does one avoid getting caught under the crushing weight of credit card debt?
Use your credit card only when it’s necessary. It sounds easy but it requires a lot of discipline and self-control on your part. Be smart with the purchases you make using your credit card and make sure that the amount you charge is something that you can conveniently pay in full on the next billing cycle. So the next time you go shopping, ask yourself the following questions:
- “Do I need this?”
- “Can I pay for this in cash right now?”
- “If I charge this item on my credit card, will I be able to pay for this in full next month?”
If you answer NO to any of these questions, then you better keep your credit card stashed safely in your wallet. The smaller balance you have in your credit card bill, the easier it is for you to pay it off in one go, and the sooner you’ll get rid of your credit card debt.
2. Save for the rainy days.
The Federal Reserve Board recently reported that 4 out of 10 Americans can’t afford a $400 worth of emergency expense. Those who don’t have a contingency plan for emergency situations would normally have to depend on taking out a loan to cover the cost. This dependency on debt is one of the reasons why there are thousands of people who are facing a financial crisis that stemmed from an emergency situation.
A financial crisis like this can be averted by having easy access to a pool of emergency funds. Whether you are single or have a family take care of, you must have enough money to cover all the basic necessities for at least 3 to 6 months.
Building an emergency fund doesn’t happen overnight; it takes time. Consider your needs and your situation: how much do you need in order to stay afloat without any additional income or having to rely on debt? Once you figure this out, come up with a realistic plan and timeline to reach your goal, and an amount you can set aside from your salary to put into your emergency funds.
Keep in mind that your emergency funds are solely for emergency purposes and not to be used to pay off your debt or spent on the Black Friday sale.
Emergency situations don’t have to lead to a financial catastrophe. As they say, always expect the unexpected. Soon, no emergency situation will take you by surprise because you’re ready for it, and survive debt-free.
3. Curb your band spending habits.
A study shows that 40% of millennials go into debt over their fear of missing out.
Your fear of missing out will most likely lead you to develop bad spending habits just so you could keep up with your peers. What you need to realize that FOMO spending can be devastating to your finances because you are funding a lifestyle you can’t afford with debt.
Learn to curb your bad spending habits before you get buried deep in debt. Start by being honest to yourself and accepting your current financial situation. It’s okay to miss out on certain things if it means keeping yourself debt-free. Live within your means and gain control of your finances because nothing is more satisfying than knowing you don’t have to worry about money in the future.
4. Don’t be afraid to ask for help.
Dealing with debt is always stressful and frustrating. Creditors don’t make it easy for you either; all they want is to for you to pay your debt, regardless of your financial situation.
If your debt is only a few hundred dollars, and you are capable to pay it off in full, then don’t let yourself get stuck in making minimum monthly payments where a huge chunk of your payment goes towards the loan interest. Pay it off in full. If you can’t pay it in one go, then pay more than the required minimum amount. A debt paid in full is one problem off your back. Just think about the huge savings you will get right after.
However, if your debt has become too burdensome, then you might want to sign up for a debt relief program. Debt relief programs, as its name implies, offer a measure of relief to anyone who is in debt, which may come as either partial or full forgiveness of debt. What’s good about these programs is that it offers a better option for those who want to file for bankruptcy just to get rid of all their debt.
To know which program is right for you, consult a debt counselor from a reputable debt relief organization. Most debt relief companies offer a free consultation which means you don’t have to spend a penny to get professional advice on how to get your finances back on track.
It is possible that you may still incur debt in the future. What is important is that you already know how to take action and avoid being stuck in that situation as much as you can. Try to discover more ways on how to become debt-free and put it into practice. This, along with good money management habits will pave your way towards financial independence.