Staying out of Debt

While searching the internet, you are likely to find many ways to improve your credit rating, most of which involve going into debt in order to do so. However, while it may not improve your credit rating as much, the best way to live is to avoid having debt in the first place if at all possible. If you are careful to live without debt, you are likely to find that you can afford most of the things that you want and need without having to worry about whether or not you have credit available at all.

The first thing you have to do when you are trying to avoid debt is to make sure that you always put money into savings. At least 10 percent of your income is recommended, and the more you can save, the more you will have when you need it. The average American only saves 4 percent of their income, and that really is not enough for anyone. The best way to make sure that you are saving enough is to look at it like a bill each month, and put that amount away.  You wouldn’t scrimp on one of your bills, so why scrimp on savings. From there, you need to create a budget with the remaining 90 percent of your income.  

Make a list of all of your bills, from largest, which is usually your rent or mortgage, to the smallest.  If your bills exceed that 90 percent of your income, figure out where you can cut back. Can you live without cable? Perhaps you can give up your land-line phone, and use a cellphone instead. Are there ways that you can lower your electric bill by conserving energy?  All of those are things that you need to look at.  

If you have a car payment, find a way to pay it off as quickly as possible. Once your car is paid off, chances are that you can cut your insurance rates on your car by either cutting back to the minimum allowed by law, or possibly just raising the deductible. The best rule of thumb for whether you need more insurance is what you have in savings. If you have enough money in savings to replace your car were it to be totaled in an accident, or just not running anymore, you only need the minimum insurance. If you don’t have enough to replace your car, you may want to consider just raising the deductible to what you do have available in savings.

Now here comes the most important part of staying out of debt. You need to settle for delayed gratification. This isn’t easy in a society that has to have all the latest technology and have it right now, but it is necessary if you want to live a debt free lifestyle. That doesn’t mean that you cannot have the big screen 3D TV, or the new living room furniture that you love. It just means that it has to wait until you have enough saved to pay for it in cash. Even cars are best bought with cash. It can be difficult to wait, but in the long run, it’s better, because you will save a lot of money by not paying interest on anything.

The other important thing to remember is to always pay your bills on time. Whether it is a past due electric bill, or you are late on your rent, late fees add up and they add up fast. It is also money that doesn’t have to be spent if you are budgeting properly. When you take out interest and late fees from your budget, you may be surprised to find that you have a lot more money than you thought you had.