Being in debt is like a double-edged sword. Not only is it challenging to get out of debt, but it’s difficult to save for the future to ensure you won’t be in debt again.
How can we get out of debt and stay debt-free? According to NerdWallet, the average debt per household in America is over $132,000, with over $15,000 of that being credit card debt.
In the world today, debt accumulation follows a common example. We graduate with student loan debt, find ourselves getting into credit card debt, and then take on a mortgage and auto loan. While many people claim “debt is just a way of life,” it isn’t, and doesn’t have to be, true.
Debt doesn’t do us any good. None of us should give up on the fight to be debt free. Because in order to get out of debt, you have to stop taking on more debt.
So, how can we avoid taking on more debt? Here’s how to become – and stay – debt free.
Stock Your Emergency Fund
Imagine you’re focused on paying off your student loan debt, and you failed to have any sort of emergency savings available to you. All of the sudden, you recieve a layoff notice. What do you do now?
With no income and no savings, you likely turn to a credit card to fund your living expenses until you find a new job, which could take months. Even when you find a job, you find yourself drowning in both your original student loan debt, plus your newly acculumated credit card debt.
This isn’t a fun topic to think about, but failing to prepare for the worst-case scenario means failing to prepare financially. People rack up major medical bills, lose their jobs, or total their cars every single day. You need to prepare yourself by creating an emergency fund.
An emergency fund will prevent you from having to take on more debt while in a tough spot. Even a small emergency fund will give you peace of mind. Because during an emergency, the last thing you should have to worry about is money.
Saving for an emergency fund while in debt can be challenging, but it should be a priority. Even saving as little as $1000 will save you from relying on credit cards in case of emergency.
Plan Ahead
Why do you have the debt you have? Most of the time, people get in debt because they failed to plan.
I personally failed to plan for college, which is why I am in student loan debt. Many people fail to plan for big purchases, resulting in credit card debt. Or, many people just failed to create a simple budget, resulting in more debt.
While it is impossible to plan out and anticipate every single purchase you will have in the future, it is possible to track what purchases you likely will have and plan accordingly.
Think about the next 5 years. Will you need a new car? Then it’s time to start saving. Thinking about going to graduate school? The time to save is now.
By saving for the things in life you know you want or need, you will prevent yourself from having to take on a ton of additional debt. Before you make a major expensive purchase or commitment, make sure you have the money to pay for it upfront.
Track Your Spending
So we have talked about how you need to save for emergencies and plan ahead for large purchases. But how can we find enough money to actually save right now?
If you currently have debt, you may find you don’t have a ton of money leftover at the end of the month for saving. Now is the time to take an in depth look at your budget to see where you can create additional cash.
What are you currently spending money on? Can you cut expenses, like cable, cellphone bills, or social expenses? By cutting out some of these common expenses, you will be able to pay off any current debt faster and save for the future to prevent more debt.
If you haven’t started budgeting here’s six options to choose from.
Make More Money
If you’re finding it too difficult to plan ahead and find money to actually save to prevent debt, maybe it’s time to consider how you can make more money.
Once you get control of your money, you can start focusing on making more money to set aside for saving for your future goals.
You can interview for a higher paying job, or you can focus on building a side hustle, like freelance writing or blogging.
It’s important to note that making more money is only effective in preventing additional debt if you complete the other steps. If you don’t have an emergency fund, plan ahead, or know where your money goes, any extra money you make will be wasted. If you do not have control of your money right now, a higher income will not solve your problems.
However, once you’ve gained control of your financial situation, side money can be an excellent resource to pay off debt quickly or to rapidly build a savings, which both are key to staying out of debt.
__________________
Remember that while getting out or avoiding debt isn’t always fun, the motivation for living a debt free life is the freedom you’ll gain. Without debt, you can spend your money how you want instead of how you have to.
You may enjoy some of our other related posts:
When it comes to paying down debt, what has worked well for you? What further actions do you plan on taking?
Check out some of our favorite personal finance resources:
Are you getting the best credit card rewards? Check out the top cash back credit card offers (updated daily)
Make extra money: 15 ways to make money from your computer
Get the First Chapter Free!
Join our online community and get the first chapter of the book Student Loan Solution absolutely FREE!
Totally agree with making more money! I was actually just sort of laid off at my job on late notice. I went in for work on a Monday, found out on Tuesday that I’ve almost reached a yearly cap on how much I can work for my employer, and was out of work the next week.
I don’t have a huge emergency fund saved yet, but I DO have freelance writing as a side hustle that I’ve been building up for the past year. I’m using my side gig as a sort of emergency fund now, since it’s providing me with enough money to live on until I can get another job! :)
Sorry to hear about the layoff, but glad to hear you have a plan and security! Best of luck finding another job. I know you’ll find one quickly!
Great advice here! The emergency fund is such a necessity! This is the absolute first thing we did before beginning to pay off debt and it worked. I love not having to worry if we get an unusually high bill or unexpected expense. We had a $700 medical bill last month and, though I wasn’t exactly happy with the amount, I wasn’t worried about how we would pay for it either.
Thanks, Amanda! I’m right with you. I had a $400 vet bill this week! But emergencies are important to take care of and it’s so comforting to not have to worry about how to pay for small ones when they come up.
Absolutely true :D
Thanks, Giulia!
Tracking your spending and having a nice emergency cushion are some of my favorite ways to keep a reign on debt. It’s very easy to go into debt if you don’t even know what you’re spending your money on and that’s a problem that lots of folks experience today – not knowing where their money is going.