7 Habits That Can Make Avoiding Debt Easier
Avoiding debt isn’t controlled by your income so much as it is by your financial habits, and the many financial choices you make day in and day out.
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While paying down debt takes time, patience and discipline, proactively avoiding debt simply requires a few tweaks to your financial perspective, habits and lifestyle choices.
Here are seven habits that can help make avoiding debt easier.
1. Stop shopping as a hobby.
Avoiding debt requires that you understand the difference between a want and a need—and adjust your spending habits accordingly. U.S. News and World Report explains that while just 5% of people suffer from a compulsive desire to shop, an increasing number of consumers struggle to limit their spending, now that conveniences like online shopping and credit cards make it so easy to make impulse purchases.
If you self-soothe with retail therapy or count a day at the mall among your favorite pastimes, consider investing your energy in inexpensive hobbies that provide similar mental, physical and social benefits — without the financial downside that mindless shopping presents.
2. Budget for special events.
Avoiding debt requires that you have enough cash on hand to cover your monthly expenses, in addition to occasions like holidays, birthdays, weddings and vacations.
Review your credit card and bank account statements from previous years to determine how much money you need to set aside for such events, or form a budget based on national averages. For example, the National Retail Federation says the average consumer spent about $935 during the December 2016 holiday season; the average American household spends about $1,800 on vacation, according to Condé Nast Traveler.
Divide the total you expect to spend on each occasion by the number of weeks you have until you’ll make the purchase to determine how much cash to dedicate from each paycheck to reach your goal number.
3. Don’t charge what you can’t afford to pay for in cash.
Cashback rewards can pay you money simply for using your credit cards — but you need to have the cash on hand to pay your monthly balances in full by the payment due date in order to avoid interest charges and similar fees. Avoiding debt is equal parts strategy, discipline and planning: Subtract your credit card purchases from your cash on hand so you don’t accidentally overspend.
4. Eliminate transferred credit card balances.
Low- or no-interest balance transfer offers can reduce the overall cost of your credit card debt, especially if you transfer your highest interest rate credit card balances to them. However, avoiding debt with this strategy requires that you pay the balance transferred in full before the promotional interest rate expires — and that you don’t use the card for new purchases.
5. Pay yourself first to prepare for emergencies.
Establish automatic transfers to an emergency savings account so you consistently set cash aside in your monthly budget to build an emergency financial cushion. Avoiding debt is easier when you have a savings account you can turn to for emergency expenses like a medical bill or a flat tire, so you’re not forced to rely on your credit cards.
6. Limit your housing costs.
The Joint Center for Housing Studies of Harvard University estimates that the number of renters who are considered “cost burdened” because their monthly housing expenses exceed 30% of their income has reached record high levels. Limiting your housing costs may mean you need to live with a roommate, downsize your apartment or home, or move a bit further outside of high-demand areas, especially if you live in a high cost of living area.
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7. Buy a car based on the sticker price — not the monthly payment.
CARFAX reports that a car may depreciate in value by as much as 60% within the first five years of its life. Don’t invest your cash in a purchase that is guaranteed to result in financial loss. Instead, buy a car based on its total cost, and your ability to own it outright as quickly as possible. And then plan to drive it for several years after you’ve paid it off.