Everybody has a dream to buy a car or a home. Most of the time this dream doesn't come true because of huge debt obligations people have to deal with. For that reason, debtors need to be aware and find out ways to stay out of debt and lead a financially stable life.
Tips to stay out of debt
Here are some of the practical and beneficial tips that will help you to stay out of debt and build up an emergency fund to make your dream come true:
- Make a list of income and expenses: Keep a record of your monthly income and expenses. By doing that, you'll be able to know whether or not you are spending beyond your means. Once you track your income and expenses, you can easily make out a proper budget for yourself and stay within it. This in turn will help you to stay out of debt.
- Build up an emergency fund: Always try to create an emergency fund for unforeseen circumstances because you don't know when you may need it. If you or your family members become a victim of an accident or get admitted in a hospital, then at that time this emergency fund will provide you with a financial support. That's why keep aside a certain amount of money every month from your income.
- Cut down your unnecessary expenses: One of the most common financial mistakes committed by people is that they always spend more than what they actually earn. You should try to make purchases as per your needs and not wants. Segregate your expenses into two categories - discretionary and non-discretionary. Focus your budget on the non-discretionary costs like mortgage payments, utility bills, medicines, groceries, etc and reduce the number of your discretionary expenditures.
- Pay off highest rate debt first: When you have decided to pay off your debts, then your first and foremost duty is to find out the number of debts that carry highest interest rates. This is because once you get relief from your highest interest rate debts, then it'll become easier for you to move on to the other lower rate debts.
- Use cash more often: Always use cash to make purchases instead of credit card/debit card. When you use credit card to make any purchase, you tend to forget the value of your money. When you'll have to take out your hard earned dollars from your wallet against any purchase, then you'll think twice before spending them. That's why using cash will prevent you from making bad purchases and help you to develop a healthy saving habit. You'll be able to stay within your budget and avoid falling into a debt trap.
Keep a track record of your total debt amount and monitor your credit report monthly to find out any discrepancy. Always be conscious about your monthly payment, because one late payment can drop your credit score by certain points. If required, you can set up a reminder alert in your cell phone or emails. Try to pay off your credit card bill first since the interest rate is too high. Otherwise one miss payment can make your life miserable. By this way, you will be able to establish your credit and rebuild your financial life once again.