10 Ways To Avoid The Debt Trap. No one wants to be in debt, but because of some situations beyond our control, we always find ourselves owing here and there. Having said that fact, there is hope though that we can avoid the dent trap. Here are some simple tips for those who want to live a debt-free, stress-free life during their best years.
1. Pay Debts On Time
If you have debts to pay, make sure you have the correct direct debits/standing orders and available money to pay them on time. Often the charges for missing payments can cause your initial debt to soar, which can lead to spiraling debts and financial chaos.
2. Set A Budget
Staying out of debt starts with knowing how much you can (and can’t) spend. A realistic budget is the foundation. Take into account everything you spend money on, such as movie tickets, loan payments and groceries.
3. Stick To Your Budget
Sticking to a budget is often easier said than done. The easiest way to regulate spending is to have an account which your wages are paid into, and a separate account for spending, and then arrange for a set amount to be paid into the spending account, to ensure that you can keep track of your finances without overspending.
4. Be Realistic
Luxury items bring fleeting and temporary happiness, which dissipate as quickly as they come. Expensive clothes, technology and furniture actually do very little (if anything) to improve your life and general satisfaction levels.
5. Spend strategically
When managing your budget and disposable income, spend where your priorities and goals are and cut costs elsewhere to avoid debt. This approach can also free up more cash for your goals, such as saving to buy a home or retire early.
6. Save For Emergencies
It’s inevitable: A hospital stay will leave you with bills that you didn’t plan for, or your car will break down. Unexpected expenses can clobber even the most carefully planned budget, but an emergency fund can help you weather the storm.
7. Live A Humble Life
Some of the best things in life cost little to nothing. You can’t put a price on good company, laughter or fun. Anyone who claims that you can’t have fun without spending money probably isn’t much fun to begin with. Some of the best activities in your life life can absolutely be cheap or free.
8. Avoid Credit Cards
If we could give one piece of financial advice to anybody in their 20’s, it would be this. You may think that it’s a good idea to have a credit card for emergencies, or to use one to improve your credit rating, and although these are all well and good, the reality is that credit cards are rarely used for these purposes, and the temptation to spend on them is always there.
9. Avoid “Credit Scams”
Watch out for credit repair or credit counseling scams. Companies appeal to consumers with poor credit histories, promising, for a fee, to clean up their credit reports so they can get a car loan, a home mortgage, insurance, or even a job. The truth is, after consumers pay certain fees, these companies may do nothing to improve the debtors’ credit reports, and, some vanish with the unsuspecting consumers’ money.
10. Protect Your Loved Ones
If you pass away, your loved ones may be responsible for paying off your debt. You can protect them by purchasing life insurance. In addition, depending on the type of policy you purchase, you may be able to take a loan against your policy’s cash value to help with future expenses, such as buying a house.