Are you struggling with credit cards or personal loan debt? If so, then you’re unfortunately not alone.
On average, nearly every household in the U.S. carries $8,398 in credit card debt. And with APRs in the 20 to 30 percent range, that’s only going to add up to a bigger problem the longer it takes for this debt to be paid off.
While paying off debt is one thing, another way to tackle this problem is to play defense. Starting today, you can officially declare that you’re not going to get yourself into any new debt.
To do this, you’re going to need to change your financial habits and learn how to avoid situations that might get you back into a bad routine. Here’s how to keep yourself away from debt and get more out of your money.
Don’t worry if you do have some debt, there are ways to pay that off faster and get back to where you want to be. Even your mortgage can be paid off faster. Make sure you do the right things and you’re finances will take care of themselves.
Recognize When You’re After a Shopper’s High
You’ve probably heard of a “runner’s high”, right? This is the good feeling you get after you’ve completed a nice long jog or are training for a race. It’s attributed to the chemical dopamine that your body releases into your bloodstream and can even be somewhat addictive.
Strangely enough, shopping can bring on this same sort of “high”. According to data gathered by Harris Interactive,
- 31% of women say that they’ve shopped specifically to elevate their mood
- 53% of people have shopped as a way to celebrate something
While everyone deserves to spend their hard-earned money however they wish, it’s behaviors like these where we have to be careful. Spending beyond our means just because you’re bored or trying to make yourself feel better is a terrible way to remedy the situation.
What you can do: The best way to regulate your shopping habits is to make a list and stick to it. Write down all the things you actually need, and maybe even a few things you simply want. Put these items in order of priority starting with the most important ones first.
The next time you go shopping, use this simple critique: Is it on the list? If the answer is no, then pass – don’t buy the item. However, if it is on the list and has already been identified as something you truly need or want, then make the purchase. This is a great way to curb spontaneous spending while still allowing yourself the flexibility to buy the things which are important to you.
Plan Your Budget Like a Big Business
There isn’t a successful company in the world that doesn’t have a budget. Every year, no matter how big or small the business is, its someone’s job to forecast:
- How much we plan to spend
- How much we anticipate to earn
- How much profit we’ll make in the process
Managing your household finances are really no different than this. So why would you handle them any other way?
When you create a budget, you plan out your purchases. You anticipate when your bills will become due and can spot when your bank balance might be getting low. That’s helpful to know because it puts your spending in check and stops you before you simply slap that purchase onto a high-interest credit card.
What you can do: I’ve personally used an old-school “income vs expenses” style budget for years with lots of success. But if you’d rather go more high-tech, there are all kinds of great budgeting apps out there you can download to your smartphone that will do the work for you.
One hack that’s incredibly simple and works really well is to simply go “all cash”. There’s something very psychologically difficult about spending physical dollar bills, and people often find themselves more hesitant to spend them than they normally would with the swipe of a credit card.
Create an Emergency Fund
If it’s any wonder how so many people get themselves into debt in the first place, the answer might have something to do with their lack of preparedness.
According to a survey from Bankrate, only 41% of Americans would be able to cover a $1,000 emergency expense such as a car repair or trip to the emergency room. Unfortunately, without any savings to readily pull from, these people have no choice but to go into debt by putting these emergencies on their credit cards or by taking out a personal loan.
To avoid putting yourself in this position and possibly owing thousands of dollars in unnecessary interest payments, it’s good to have a financial cushion that you can fall back on. That’s why so many experts and advisors recommend that you make building up your emergency fund a top priority.
What you can do: Start getting to work today on building up a cash reserve of at least 3 to 6 months’ worth of income. Try it by doing something as small as setting aside $10 per week. Although it might seem like it will take forever to build up, eventually all of those contributions will add up.
Don’t worry if your emergency savings is not being invested or gaining interest. Think of your emergency fund more like an insurance policy against having to turn to a high-interest credit card.
Make a Game Out of Getting a Better Deal
If there’s one thing I’ve learned about buying things, it’s that someone is always willing to sell you the same thing for cheaper. You just have to sometimes put in a little extra effort to find out who that is.
So why not make a game out of it? No matter what we’ve got planned to buy, big or small, I always make sure to check with multiple vendors before I make my purchase. Amazingly, this has led to incredible amounts of savings – sometimes price differences in the thousands of dollars.
What you can do: My simple rule for getting the best price – always get at least 3 quotes. It doesn’t matter whether you’re having contractors out to your house to do some work, or if you’re simply buying something online. Always find out the price from at least three different people.
Remember that every less dollar you spend is one less dollar you might potentially finance in the future. That’s why although it may take some effort to find the best price, the payoff can be substantial later on.
Stay Focused on the Big Picture
I get it. When you’re in the moment, it’s hard not to spend money. You want to show your family a good time, eat at the best places, and buy only the best stuff.
But when you live in the moment, you allow yourself to be consumed by this kind of “noise” too easily, and it’s exactly these kinds of spontaneous choices that will land you in debt. To not get suckered into spending more than you should, you need to focus on the big picture.
The people who truly have the best relationships with money are the ones who have come to realize that their purpose isn’t to simply have more money or even things. It’s to use money and things to build better relationships with other people, do more for the common good, and leave their mark on this world.
What you can do: To better understand how money can be used to enhance your life, you have to first decide what it is you want your money to help you accomplish. Do you want to:
- Achieve financial freedom?
- Send your children (or even other relatives) to college?
- Start a business you always wanted to have?
- Fund a cause you believe in?
Whatever you’d like to accomplish is completely up to you. But whatever it is, let the big picture be the thing that guides your spending habits and keeps you away from debt.
Contributor’s opinions are their own. Always do your own due diligence before investing.
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