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Manage Debt
Excellent Strategies to Avoid Debt |
A little common sense and
self-control are usually the best mix of ingredients for avoiding debt. In some cases, it
may be as simple as eliminating your excess spending. If you've been living beyond your
means while buying on credit, your situation may require more extreme measures. Here are a
few tips to help you control spending and stay out of financial hot water.
- Toss the cards.
If you are charging more than you can afford, it might be time to cut up your cards and
cancel your accounts. Put yourself on a cash basis for purchases and see what a difference
it can make. If you insist on using credit cards however, try to stick with one card and
make sure you pay off the balance in full each month. Add a safety net to your spending by
reducing your credit limit to an acceptable level.
- Switch to a debit
card. Often called Check Cards or Cash Cards, debit cards offer you the
convenience of regular credit cards without the temptation of high credit limits.
Charges to your debit card are like the electronic equivalent of writing a check. It's not
likely you'll overspend on a debit card because the balance of your checking account is
the credit limit. Debit cards may not control your spending, but they can prevent you from
spending money you don't have.
Tip: A stolen debit card doesn't offer the same loss protection as a
regular credit card. User liabilities on a debit card can run as high as $500 unlike the
normal $50 limit on most credit cards. Check with your creditor to see what user liability
limits are in place.
- Switch to a charge
card. Charge cards such as American Express or Diner's Card charge no interest
but must be paid in full each month. Since there are no credit limits on charge cards,
it's possible you could overspend if you're not careful. Most people, however, will be
less likely to exceed their spending plan if they know they'll have to pay in full
monthly. If you don't mind the higher annual fees, charge cards might be the right choice
to help you avoid going into debt.
- Stop the impulse
spending. When you see an item you hadn't planned on buying, don't purchase it.
You can live without it. If you must consider the purchase, at least give it a day or two
to think it over. Spending impulses usually fade over a good night's sleep. Curb your
addiction to sales because $50 in savings isn't savings at all when you didn't need the
item to begin with.
- Be creative.
Stash your card in a safety deposit box or freeze it in a bowl of water. This will make
you question the necessity of your purchase while you retrieve (or thaw) your card. Every
time you use your credit card, immediately write a check payable to your creditor for the
amount you've just charged. When your credit card bill arrives at the end of the month,
just throw all your checks in the envelope and consider your bill already paid.
- Anticipate and plan.
Get used to the unexpected expenses that occur in life: car repairs, gifts or presents,
appliances, medical bills, braces and the like. Avoid charging crisis to crisis by setting
up a maintenance fund to cover such items. Take 10% of your paycheck each month and devote
it to your fund so when the time arrives, you can avoid having to charge such
expenses. Never use credit to buy depreciable items such as cars, clothing, or food.
Borrow only for investments that make sense- a college education, real estate, or a new
business are all good examples.
Credit and Debt Calculators:
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• Should I pay off debt or
invest in savings?
• What will it take to pay off my balance?
• Should I consolidate my
debts?
• How Much Am I Spending?
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