6 Tips on How to Avoid Getting into Debts – 2024
Wondering how to avoid getting into debts? Good money decisions is certainly the only way to get out of any form of debts. You may not want to think of debt because of its negative connotation, but your life style and daily financial decisions can put you in debt.
The truth is that, sometimes taking on debts could be the only way out. There are many good reasons to avoid debts
In the wake of increasing taxes and inflation skyrocketing, getting into debt shouldn’t be an option at all. When it comes to money decisions, you need to be deliberate.
Best ways to avoid getting into debts
1. Lower you cost of living
Cut down what you pay towards bills and subscriptions as much as possible. Instead of signing up for premium subscriptions, why not consider regular?
Again, there are discounts and coupons on items at the grocery or hardware shops, use them. Try to lower you cost of living as much as possible.
You may not realize it immediately but small cuts on your spending can add up fast and will help you build savings.
2. Live within your means
Living within your means is the best way to avoid any form of debts. Spending freely is probably the easiest way to get into debt. If you can’t afford, don’t buy. Spending money on a whim will only get you in mounting debts.
Buy stuff you can actually afford, and not stuff for social media posts and attention. Also, only use credit cards when you can’t pay for things in cash.
3. Create a personal budget
Without proper budgeting, you can easily get into debts. If you want to get a better understanding of your financials, then budgeting is the way to go. You will know how much comes in, how much goes out and whether to consider extra sources of income.
This way, you will know what expenses are necessities and discretionary. You see, when you take budgeting seriously, you will always find some expense items that you need to cut off. This will keep you from debts.
4. Start an emergency fund
Having an emergency fund can save your from unexpected debts. Emergency medical bills, job loss, and funeral can you get you in debts. But emergency funds will cushion you, if you have any.
To avert this, create an emergency fund to take care of these ‘just in case’ situations. Automate a monthly contribution to this fund.
You can also decide to save up 3 to 6 months salary as an emergency fund whiles you live on your side hustles for a while.
5. Consider cash payments
The use of credit cards is the easiest way to get into debts. It allows you to buy what you don’t need now, and pay later. Just as many other electronic payments systems, credit card has become a necessary evil, and must be used sparingly to avoid accumulating debts.
I mean, who wouldn’t want to swipe cards around for stuff they want now and pay later? It is easier to do that, but the result would be a pile of debts waiting to suck you dry. So try to pay with cash whenever you can.
6. Consider a side hustle
Having an extra source of income is the best way to avoid debts. Side hustles boost your financials and delay any potential sight of debts and loans. You can make money online with eCommerce, Affiliate Marketing Programs, blogging, content creation, trading forex or cryptocurrencies or offer writing service on Fiverr, among others.
Don’t be ashamed of your side hustle, as long as it pays the bills and lighten your financial burdens, keep on.
Best way to pay off debts: Debt repayment strategies
1. The Snowball Strategy
The Snowball method of debt repayment allows you to start paying off your smallest debt first to get it out of the way whiles making minimum payments on all your other debts. Then you move on to your next smaller debt.
For instance, if your debts are $500 in credit card, $10,000 small business loan or $50,000 in student loans, you start by paying off the $500 first. This will give you a sense of accomplishment and momentum to take on the larger debt, just like a snowball rolling downhill.
The downside of the snowball strategy is that, interests on the larger debts foregone will compound whiles you are still paying the smallest debt.
2. The Avalanche Strategy
With the avalanche debt repayment strategy, you sort out your debts according to their respective interest rates. The avalanche method involves paying off the debt with the highest interest rate first, then the next higher interest and so on, while making minimum payments on all your other debts.
The advantage of the avalanche method is that, it will save you money as you may pay less interest overtime by eliminating the debt with the highest interest.
3. The Debt Consolidation Strategy
Debt consolidation involves combining all your debts into a single larger debt, negotiate for a better rate and start paying it off. It works best when your individual loans have high interests.
Once all your loans are consolidated, you only make one debt repayment per month instead of multiply repayments on individual debts. This strategy helps you pay lesser interest.