How to Avoid Falling Back into Debt – Military.com | CarTailz

Staying out of credit card debt is the next step after getting rid of credit card debt. In the world of personal finance, you often hear about the four main steps to financial success:

  • Have an emergency fund
  • pay off debts
  • Save for future expenses
  • Investing for long-term spending and retirement

What we don’t talk much about is staying out of debt once you’ve paid off your debt the first time. For the purposes of this article, we’ll be talking about credit card debt, but many of these principles can be applied to other “bad” debt such as personal loans, excessive car loans, excessive student loans, and payday loans.

For many people, getting out of debt is the start of a roller coaster ride of accumulating and paying off debt, and then incurring more debt. While it’s a win every time you pay off your debt, the next big step is getting out of debt altogether.

So how do you stay debt free once you have become debt free? There are different strategies, and each has advantages and disadvantages.

Pay everything in cash

Some people find that they just can’t control their spending when they have credit cards in their pockets. In this situation, giving up credit cards is the right answer. Sure, you won’t get any cashback or other benefits, but those benefits aren’t worth accumulating a balance that you can’t pay back at the end of the month. Be honest with yourself: are you in a place where you can use your credit cards responsibly?

I am not advocating that nobody should ever use credit. Far from it: credit is a useful tool and can be a great handrail in reaching your financial goals, but I’ll admit that there are some people who shouldn’t be using credit at all. We need to know our own limitations in life.

Save for future expenses

I’m a big fan of planning your expenses ahead of time and saving for expenses ahead of time. It’s a smart financial move, but the reason I like it is because it makes spending less stressful. Child breaks his glasses? No problem, there is money on the health insurance account for this. Uniform boots burst? The biggest problem is stocking the right boots, not how to pay for them.

There are a hundred ways to save for future expenses. Some banks allow you to have sub-accounts within a bank account. Many people use a spreadsheet. I have about 10 different savings accounts. Physical envelopes with cash work. (It was our first step toward preplanned spending, and it transformed our financial lives.)

It does not matter how you do it as long as you do it.

Build guidelines into your financial plan

Guard rails are important in life. They keep you on balconies, they keep cars from crashing into rivers, and they help keep your financial life on track. There’s only so much damage you can do if you’ve built the right guard rails.

What are the financial guidelines? Sometimes they are tricky. They can be broad, like “Don’t spend more than you make each month,” or very specific, like “We only order pizza twice a month.” This could be a specific category of expense, a specific dollar amount, or a specific percentage of something. A common guideline used to be that you shouldn’t spend more than 25% of your monthly income on housing – although that guideline has had to give way a bit lately.

Great guidelines I’ve heard about include never spending more than $100 without sleeping on it first, always buying something used before buying new, and following a prearranged financial plan.

Ultimately, being debt free requires as much discipline as being debt free in general. It’s a little easier because you usually have more financial freedom when you’re debt free, and you’ve had the experience of doing tough things when it comes to your money. Use the skills you learned while paying off your debt to avoid going into debt again. You can do it.

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