Monday, March 24, 2014, PM | Leave Comment
It can be easy to fall into overwhelming debt. It can happen gradually over several years or it can happen suddenly due to a single emergency or purchase. There are households today that do not carry debt from month to month.
Five effective habits help many people to live without debt.
Follow a Budget
People without debt stay constantly informed about income and expenses. This means creating and following a real budget. Budgets make it possible to predict how much will be spent each month and how much can be saved. A budget should be created using real numbers for debts and income. It should also be adjusted as things change so that debts never exceed income.
Avoid Excessive Credit Card Use
Debt-free households do not rely on credit cards or loans for daily spending and necessary monthly expenses like utilities. It costs more to pay through credit cards or loans than to use savings. Extra money is drained away in interest and other fees. Credit needs to be used wisely to stay free from debt. Debt will eventually grow beyond household income when credit cards are used to cover everyday purchases.
Another important habit is to live frugally. This means limiting unnecessary purchases and expenses. It also means taking advantage of discounts, coupons and refunds. Frugal living does not mean avoiding entertainment spending, vacations or expensive nights out. It does mean making sure that any expenses can be easily paid for and will not harm personal finances or interfere with saving money.
Save For Large Purchases
A large purchase like a car can start a person down the path towards revolving or overwhelming debt. Although large purchases are often necessary over the course of many years, they must be approached responsibly. Debt-free families save for large purchases for months or years. This reduces the financial impact of making the purchase even if the savings to do not cover the full price of the item. Saving for a purchase allows a household to stay ahead of payments or to shorten the term of financing dramatically.
Maintain a Fund for Emergencies
Financial emergencies like medical bills or car repairs can throw a household into debt fast. A financial emergency sometimes ends with a person filing for bankruptcy through attorneys like Lynch & Belch P.C. to have the debts discharged. A way to avoid this is to maintain an emergency fund separate from other savings. Keeping the money for at least two to six months of living expenses in the fund will ensure emergencies do not destroy personal finances.