How To Avoid Debt

by mike on October 28, 2010

Debt is a major problem.  Our government is in debt so bad it blows your mind to even think about it.  More troubling, people are in debt in their households.  This debt causes stress and can even tear apart marriages.  I often talk about how to GET OUT of debt, but it is also important to look at how to AVOID it.  The following are 4 things you can do to avoid debt:

  1. Do a budget.  The word “budget” has such a negative connotation for some people.  It can be seen as a straightjacket that serves to control you.  In reality, a budget gives you more freedom because it gives you control over your money.  When you are in charge and telling your money what to do, your money will be used more efficiently.  Doing this will cause you to live below your means.  If you live on less than you make, you avoid debt!
  2. Avoid credit cards.  It is too easy to get sloppy with credit card use.  You start using it for everything you buy and next thing you know you can’t make the minimum payment.  I have people tell me all the time that they use their credit cards responsibly.  I have two objections to this.  First, I have yet to meet with someone who has a lot of credit card debt say that was their plan all along.  No one plans to get into credit card debt.  You usually start off paying off the balance and then a little “emergency” comes up and it is put on the card.  Next thing you know you are only able to make the minimums and the debt keeps growing and growing.  My point is that everyone thinks they are going to use them responsibly.  The second objection is that you will spend more money using a credit card compared to cash.  Many studies have proven this.  Here is a recent article about one.  It hurts more to hand over cash than to swipe a card.  I find it easier to not mess with credit cards at all, makes my life simple and stress free.
  3. Avoid unnecessary or risky loans.  There are many loans that fall into this category.  In fact, I would say pretty much all loans except for a mortgage are generally unnecessary and/or risky.  But, for brevity purposes, I will just comment on a  couple.  One is a consolidation loan.  In fact, I did a whole article, A CONsolidation Loan Story on why to avoid them.  The second is loans for furniture or something where you plan on paying it off before the interest kicks in.  I have had people tell me “I am going to pay it in full within the six months no interest period when I get my tax refund or when I get my Christmas bonus”.  There are way too many things that happen in life to mess up this scenario.  A mistake with your tax withholdings or your employer not doing bonuses this year will all of a sudden cause a major problem.  If you do not have the money now to pay for it, don’t buy it assuming you will have the money later.
  4. Don’t try to keep up with the Jones’s.  They most likely have a bunch of debt anyway.  Most people like to let everyone else think they are doing well financially when in reality they aren’t.  It’s easy for us to get caught up with consumerism and that is not a way to win financially.  Check out my articles The Portrait of a Millionaire and Why Be Frugal about how the typical millionaire behaves when it comes to lifestyle spending.  The bottom line is that if you want to avoid debt, you must be willing to live below your means and maintain a basic lifestyle. 

Obviously, the best plan of action is to follow the above advice and avoid debt from the start.  It will cause less stress in your life and especially your marriage.  Debt is like a weight that holds us down.  It take your freedom and dictates decisions you have to make.  If you have already gotten yourself into debt, the first step is to avoid it from now on.  If you want to know how to get rid of the debt, check out Life After Debt.  If you haven’t talked about debt in your marriage, now is the time.  Make a commitment to avoid it, get rid of it, and live happily  ever after.  The end.

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