Strategies for Staying Out of Debt
5 Tips to Help You Stay Out Of Debt For Good!
Being in debt is a burden no one wants, but it is increasingly getting harder to stay out of it given the continuously rising costs of living and the increase in student loans. Fortunately, staying out of debt is possible, and it is something we must all strive to do to reach our financial goals. These strategies will help achieve this goal.
Be frugal with your money
As noted in Improve Your Health While Still Remaining Frugal, frugality is now the way to go, but you will need to be smarter about your day-to-day choices to make it work. A crucial step to frugal living is creating a budget, followed by sticking to it. A budget helps you pinpoint where and how you can cut your expenses but still invest wisely in healthy lifestyle choices.
So, take out that pen and paper (or just download a budgeting app), note down your typical expenses, and start tracking them. After a month, you can start itemizing non-essential expenses (e.g. memberships you do not use, subscriptions you do not need, etc.) that you can cut back on, if not eliminate completely. You will be surprised at how much you can save when you use this method.
Try not to swipe
A credit card can form a highway to debt. Far too often people make the mistake of using their credit card to buy things they cannot actually afford. Do this over and over, and you can find yourself in serious debt.
The solution? Don’t swipe! Only use the cash you have at hand for your spending. Your mindset should be: “If I cannot pay in cash, then I cannot afford it.”
Maintain an excellent credit score
A good credit score can do more than just qualify you for low-interest rates on loans and credit cards. A good credit score can also help you save on cable TV subscriptions, cell phone plans, and insurance policies. So, check your credit score ASAP. If it is good, strive to keep it that way. You can do this by paying off your bills on time, paying down your debt, and paying off in full any credit payment you make each month.
If your score is not looking too good, you have work to do. The first thing you will need to do is to get caught up on any late payments you have, followed by paying off big credit card balances. You will also have to limit new credit inquiries as much as possible.
Hustle, hustle, hustle!
With today’s thriving gig economy, using side hustles to your advantage is a good way to earn extra money. Find your own side hustle. Earn some extra cash giving a ride to others, writing, or running errands for your neighbors. Bid for freelance work. Make and sell art. Be a virtual assistant. It’s extra work, yes, but the extra income you will get will prove useful in keeping you debt-free.
Got a raise? Don't add it to your budget — make it grow
So, you got that raise, earned something on the side, or got a tax refund? Congratulations! That is great news! Just do not give your budget a raise. Instead of spending it, ook to grow that extra money, and do the opposite of increasing debt! Here are some low-risk options you can consider, instead of placing it in your spending plan:
High-yield savings accounts
Her First $100K founder, Tori Dunlap, keeps 30% to 40% of what she earns in a high-yield savings account. This ensures that Dunlap’s money is “working” for her and growing at a higher rate than it would in a traditional savings account. You might want to follow suit, as savings accounts at local banks will earn you a measly 0.09% interest. A high-yield savings account, on the other hand, will earn you as much as 20 times more.
Government bonds are generally considered a safe asset, with the issuing government paying the bonds’ face value upon maturation, plus the interest rate. Essentially, the government is borrowing money from the public to finance its activities, or to pay off previously-issued debt. They usually offer long-term options, from 3, 5, and even up to 20 years. Additionally, the risk is low as it is unlikely that the government will default on payment.
Certificate of deposit
Certificates of deposit (CD) are savings accounts with a fixed interest rate and a specified date of withdrawal called the maturity date or the term. CD terms typically vary from 1 month to 6 months to 5 or even 10 years after the initial deposit. A CD is a great way to keep your money to one side while it grows since you cannot withdraw it prior to the maturity date. CD interest rates typically range from 2.00% to 2.50% APY, although there are economic periods where they can be as high as 5% or as low as 1%. CDs also require minimum deposits that range from $500 to $5,000 or more. Typically, the longer the CD term and the higher the minimum deposit the higher the APY.
Many of these tips can be useful if you are currently in debt, especially if you live frugally, avoid needless credit card use, and get a side hustle. Eventually, you can start reducing your debt. Once you are out of debt, follow the tips discussed here and you will be able to stay out of financial black holes and begin to grow your money.
Alyshia Stephens- is a former loan analyst turned financial consultant with a goal to help as many people as possible get out of debt and move towards financial independence.
(Contributions are guest opinions only and don’t reflect the opinion or endorsement of Money Fit by DRS, our staff, clients or other interested parties.)