Learn how to master the art of debt-free living. In this article, we will discuss the top 10 tips to help you manage your finances.
Top 10 Tips to Mastering: In today’s world, debt seems to have become an inescapable part of our lives. It can affect anyone, rich or poor, young or old. It’s important to understand the very real dangers that debts can pose and learn how to work your way out of them.
Top 10 Tips to Mastering The Art of Debt Free Living
In order to do so, you need to know what types of debts exist and how they operate, as well as how they impact your life and future plans. The tips in this article will help you master the art of debt-free living by identifying debts and understanding why they are bad for you and how you can get out of them.
1) Take care of your credit card debt
Paying down your credit card debt as quickly as possible is key in helping you get out of debt. If you have $10,000 worth of credit card debt at an 18% interest rate and a minimum monthly payment requirement, it could take more than eight years for you to pay off that balance and cost you more than $11,000 in interest.
If you reduce your balance by even $100 each month, it could cut off two years and nearly $2,500 in interest. It may not seem like much money now, but every little bit helps when you’re trying to get out of debt. For instance, if you can find a way to reduce your spending by just 1%, you can save $1,311 overtime. That small change can make a big difference!
2) Live below your means
Creating a budget is one of many essential first steps in mastering debt-free living. How much do you actually spend each month on housing, food, entertainment, and transportation? Review your average monthly expenses and adjust your income accordingly. This will help you live below your means and give you more room in your budget for savings and debt reduction.
Be sure to review fixed expenses like insurance premiums as well; if they’re not affordable, it might be time to shop around for lower rates or make a few sacrifices in other areas. In fact, any item that costs less than $3 per day should get serious consideration from debt-free warriors.
3) Avoid high-interest rate loans
Avoid high-interest rate loans as much as possible. Even if you have no money, do not get a loan from a friend or family member because it will most likely come with a hefty interest rate. Use that money for something else and wait until you have saved enough for a down payment on something or when you have started working. In addition, don’t buy things on credit – if you can’t afford them right now, save up until you can and then buy in cash so that your savings are intact.
Another great idea is to stop using your credit cards as much and pay them off as soon as possible so they don’t put any strain on your finances. If you do use a credit card, only charge what you know you can pay off in full each month. If you aren’t sure about whether or not to make an expensive purchase, sleep on it for at least one night before making your decision.
It may seem like a good idea at first but once you let yourself think about it more thoroughly, perhaps there is another option that would be better in terms of cost and convenience? This tip also goes hand in hand with saving up as much money as possible before making large purchases.
4) Don’t pay interest on tax returns
With tax season approaching, consider applying for a 0% or low-interest balance transfer card. Before you do, be sure you compare interest rates and fees so you’re not going to wind up paying more on your debt. And as with any financial move, make sure it makes sense in your larger financial picture: For example, consolidating higher-interest debt onto a low-rate card could save money over time.
But if you don’t pay off that credit card right away or let your balances creep back up, those rewards may go out the window. Check out NerdWallet’s roundup of low-interest credit cards to see which offers are best for you. Also keep an eye out for balance transfer deals from issuers like Chase, Citi, and Capital One, which often offer promotional periods when you can get 0% APR on transfers made within a certain period.
5) Pay Off All Credit Cards Before You Make Any Large Purchases
This seems like an obvious one, but people accumulate a lot of unnecessary stuff. This is especially true if you live in an area with many second-hand shops. While getting rid of extra items may seem like it will make your apartment smaller, it can actually free up a lot of space and help you stay organized. One great way to declutter is by selling things on Craigslist or eBay.
When you decide not to buy something at full price, only then consider buying a cheaper version. If you’re okay with giving away your old item without feeling attached or are able to donate it for tax deductions, even better! It’s important to avoid accumulating too much debt because of purchases that aren’t necessary. It can also be helpful to look at what you spend money on each month so that you know where all your money goes each month.
By doing so, you might be surprised how much money goes towards bills versus how much goes towards entertainment expenses (restaurants, movies, etc.). You should also consider putting aside some cash into a savings account as well as an emergency fund (in case anything bad happens). It can be easy to spend everything once it hits your bank account—but saving up cash ensures that it doesn’t disappear as quickly as possible.
6) Buy Used Cars (if you can afford them)
Car dealers make most of their money on finance payments. By buying a used car and keeping your monthly costs as low as possible, you’ll keep your finances strong, which will make it easier to reach debt-free milestones. Also, less depreciation equals more cash in your pocket! You should also look into whether there’s a way you can avoid student loans while still getting an education at school. Students are often told that they need to take out student loans, but if you can afford not to take them out and pay for school in cash (or with a part-time job), then try it!
7) Make Your Savings Automatic
If you’re saving for something important like a house, retirement, or your kid’s college fund, make sure that your savings plan takes place on autopilot. Set up automatic transfers from checking to savings accounts; use auto-increase contributions for 401(k) plans, and don’t let any money slip through your fingers. You won’t miss it because you never see it in the first place. (See also: 8 Easy Steps to Budgeting Without Going Broke)
8) Don’t Accumulate Extra Stuff You Don’t Need
If you’re already in debt, buying new clothes, CDs, books, or whatever else could make things worse. Consumer debts are often easy to acquire and hard to get rid of; that means they can drag down your credit score and you might need a cosigner. When it comes to additional debt, consider these three questions: 1) Can I afford it? 2) Do I really need it?
3) Can I pay for it outright? If you answered no or not now twice or more, put away your wallet. Don’t carry a balance on your credit card: That may sound obvious but lots of folks continue using their cards long after they run up balances they have no hope of paying off at month’s end.
9) Stop eating out
If you’re currently in debt and can’t seem to find a way out, consider moving in with family until your finances are back on track. Not only will you save money on rent or a mortgage, but it also gives you a place to stay while keeping current bills paid. It’s not ideal, but sometimes it’s necessary! Many big cities have options like short-term housing that can help ease your burden while making sure landlords get paid.
When you’re living with family, however, always try to be courteous when guests come over—even if they are friends from college who came into town for just one night! Remember: While you may live at home now, never forget about financial boundaries as well as respect for your space and theirs.
10) Consider Moving In With Family Until Finances Stabilize
First, go through your expenses and see what you can cut. Ideally, you will have enough savings in a rainy day fund that you won’t have to touch it for living expenses if you lose your job. However, if that isn’t available, moving in with family is an easy way to create a little more wiggle room in your budget.
Before agreeing to live with someone else’s rules, be sure that you know when and how much money you will be paying for rent/bills and what specific chores or responsibilities will fall on your shoulders. Consider setting up a timeline for when you can move out depending on how quickly finances are stabilized after being laid off—rather than working under open-ended circumstances.
When you’re living debt-free, it may not feel like your life is complete, but as you live debt-free and build wealth it will become more clear that there really is no place like home! At one point or another in our lives, we have all felt trapped by our debts.
Whether they were from credit cards, car loans, mortgages, or school loans it is easy to feel overwhelmed when you owe so much money. It is my hope that these 10 tips will help you tackle those debts and put yourself on a path toward your own debt-free living!