Whether it’s from student loans or unexpected expenses, eliminating debt is something everyone should do to ensure a healthy financial future. However, getting out of debt isn’t only about paying it off. There are a number of decisions that you need to make in order to lower the balances on your credit cards.
If you get it right, living without debt means you have more money to fund an emergency savings account, invest for retirement, or fund a college savings account. Of course, it's not possible to live completely debt-free, there are some things that you can avoid in order to minimize debt.
Not Budgeting for Expenses
Paying off all your debt is an exciting accomplishment that might tempt you to spend more than you did before. This is a mistake that can result in you falling into the same situation all over again. Develop a realistic and conservative budget with an emphasis on the essentials.
Before even considering spending money on new clothing or that new cell phone, prioritize spending on necessities such as mortgage, rent, food, utilities, insurance, and education loans. This will ensure that you’ll have enough at the end of each month to cover mandatory expenses.
Once you’ve gone through a few months and have a clear picture of living within a budget, it's time to start planning for your financial future.
Don’t Forget To Save
Once again, you may feel less of a need to save money as you no longer have something urgent to pay off. But the next vehicle repair bill, hospital visit or plumbing issue is inevitable and your finances will take a serious hit if you don’t have any emergency savings available to soften the blow.
It’s recommended that you put around six months of savings aside specifically for these emergency situations. Make it a goal to dedicate at least 5% of your income to a savings account and reach a point where you can cover a few month’s expenses with your savings alone. The peace of mind is worth the effort.
Not Paying Off Other Debts
If your car payment is settled but you still have an unpaid credit card, this is no time to increase your spendings. Be sure to systematically pay off debts based on which of them have the highest interest rates. This way, your monthly interest fees will slowly drop.
Spend wisely during this period and take some time to find solutions to cover urgent expenses before they become a serious problem. For example, consider a guarantor loan from a company such as TrustTwo. This UK-based company offers affordable loans from direct lenders with low-interest rates and no additional fees, even if you don’t pay the loan back on time. Loans are tailored to your budget and customer support is available throughout the day to help you with any issues or enquiries.
Not Contributing To Your Retirement
The problem with focusing on paying off debt and putting aside other payments such as your retirement fund is that when you eventually do start making payments, you’ll be left with less time and subsequently less money to contribute.
You only have so long until you retire, so the earlier you start investing in it, the earlier you can stop working and start relaxing. This will also increase your quality of life throughout your time as a pensioner. We know that it’s difficult to consider this today, but your future self will thank you for it not too long from now.
Extra Tips For Saving Money
If you’re still on your way to making those last payments, we’ve compiled some advice to make the process faster and easier for you.
Analyse Your Spendings: No matter how frugal you consider your lifestyle, chances are there are things that you can cut down every month. Take a look at how much you spend on food, entertainment, and monthly bills such as your phone and internet.
Stick To The Shopping List: Modern shops make it very easy for you to purchase things that you didn’t initially walk in to buy. Every time you head out, make it a priority to draw up a shopping list and only purchase what’s on that list.
Go For Cash: Credit cards make it all too easy to swipe away on luxuries that you don’t really need. Set aside cash for daily spending and save any change that you end up with. This can add up to a healthy emergency fund for a rainy day.
Being in debt can be overwhelming and it can be difficult to know where to start. Staying debt-free comes down to discipline and maintaining a clear picture of where your money is going.