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When income is tight, putting purchases or even bill payments on a credit card or taking out a loan may seem unavoidable. However, staying in debt is a clear way to slow or prevent most of your financial goals.
Instead, learn to build and sustain some financial habits that will be likely to keep you out of debt long into the future, setting you up for financial success.
GOBankingRates spoke with experts Andrea Woroch, a consumer finance and budgeting expert, and Taylor Kovar, CFP, founder and CEO at 11 Financial, for their tips on living debt-free.
Set and Follow a Budget
If you aren’t paying attention to where your money is going, it’s easy to waste money on frivolous purchases and take on debt, Woroch said. “Therefore, it’s crucial you set a budget.”
A budget does not have to be complicated. In addition to listing out expenses and identifying areas you need to cut back, she suggested, “Make sure you’re adding your monthly savings target in your overall budget to help you succeed.”
Of course, you also want to track savings and spending to ensure you’re sticking to your plan.
In this digital age, using a budgeting app can make this process easier, she said. “Automating various bills and savings also takes the work out of your budgeting goals and ensures you stay on track. Apps like YNAB and Pocket Guard help track spending, bills and expenses.”
Make Your Money Work for You
Pay Down Credit Card Balances Pronto
Carrying a balance on your credit card will keep you in a debt cycle, thanks to high interest rates that pile up each month, Woroch warned, which can keep you from making real progress in saving money.
“To pay down debt faster and with less money each month coming out of your budget, use a balance transfer card, which offers up to 21 months with no interest,” she suggested.
Pay High-Interest Debt First
If you have multiple kinds of debt, focus on paying off high-interest debt first, such as credit card balances or payday loans, Kovar said.
“Allocate extra funds towards these debts while making minimum payments on lower-interest debts,” he said. “Consider utilizing the debt snowball or debt avalanche method to accelerate debt repayment and stay motivated.”
Equally as important, he urged, is to practice restraint when it comes to taking on new debt. “Avoid unnecessary purchases and focus on living within your means. Use cash or debit cards for everyday expenses to avoid adding to existing debt burdens.”
Consider Debt Consolidation
If your debt is too big to pay down easily, Kovar suggested, “Explore debt consolidation options to streamline debt repayment and potentially lower interest rates. Consolidating multiple debts into a single loan with a lower interest rate can simplify the repayment process and save money on interest over time.”
Save for Emergencies
Unexpected bills and emergencies can lead you into debt if you don’t have any money saved, Woroch said. “This is why building an emergency fund with three to six months of expenses is crucial to stay out of debt.”
Make Your Money Work for You
You’ll want to consider where you put your savings, though. She suggested, “Open a high-yield online savings account… so your money works harder for you.”
In these accounts, interest is compounded daily and deposited back to your account each month, helping your savings grow effortlessly.
“Plus, it’s out of sight and out of mind to ward off spending temptations,” she said.
Boost Your Cash Flow
“Between high living costs, expensive grocery prices and high interest rates, many people are just getting by with little room in their monthly budget to save or reach other goals,” Woroch said.
Giving your monthly cash flow some extra cushion can help you stay out of debt during tough financial moments. If getting a raise is not an option, that doesn’t mean you can’t make more money.
“Look for a side hustle, which you can do from home and in your spare time,” Woroch said. “For example, you can make up to $50 per hour by virtual tutoring on nights and weekends through Varsity Tutors or rake in up to $1,000 a month by pet sitting via Rover.”
Other ways to make extra cash to put towards savings include renting your car when it’s not in use, via Turo or GetAround, or your baby gear when it’s not in use through BabyQuip, she said. “You can even get paid to share your opinion by signing up for virtual focus groups through Sago.”
Tame Impulse Purchases
While cutting out big expenses is necessary to reach your goals, don’t overlook the impact all those small impulse purchases will have on your overall savings progress, Woroch said. “In fact, a report from SlickDeals found that the average consumer spends over $150 per month on impulse [purchases], and that money could go far in building your savings.”
Make Your Money Work for You
Identifying your spending triggers is crucial for figuring out how to combat them to save and stay out of debt, she said.“For instance, turn off push notifications in deal apps and unsubscribe from store newsletters if you can’t resist a sale. And if there’s a particular store that tempts you to spend more than others, avoid going into the retailers. You can always order online and choose curbside pick up to dodge temptations.”
Seek Professional Support
As always, don’t try to go it alone if that feels overwhelming, Kovar said. “Consider working with a financial planner or advisor who can provide personalized guidance and support in achieving your financial goals.”
A professional can help create a tailored debt repayment plan, optimize your financial strategy and provide accountability along the way.
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