Avoiding debt is not as easy as you think. Our society is so used to using credit that it feels normal to do so. In one report, it reveals that the household debt increased to $14.3 trillion in March of 2020.
Sure, most of that debt is because of mortgage – which is okay because every monthly payment increases your equity on the property. That means it improves your net worth over time.
But the household debt also includes a huge credit card debt. And that’s not really good because this type of debt has a high-interest rate. If you can’t pay it all off when the billing statement comes, the finance charges will kick in. That charge is heavily influenced by the high-interest rate. So the more you carry over to the next billing cycle, the more will be added to your balance because of the finance charges.
Unfortunately, this feature of credit cards did not deter consumers from using it. After all, it does make purchases very convenient. Even if we still have cash, we use our credit cards for purchases. Admittedly, most consumers do this to enjoy credit card rewards. But that shouldn’t be enough reason for you to become reckless about how you use credit.
4 ways you can start avoiding debt
The truth is, avoiding debt doesn’t mean you have to stop using it. You just have to learn how to be responsible with it. Most of all, you have to learn how not to rely on it like you used to.
There are 4 ways that you can start avoiding debt so it doesn’t pose a threat to your current finances.
Spend below your means
In the past, most people were told to try living within their means. This means their expenses should never go beyond their income. Unfortunately, a lot of people are having a hard time doing this. In fact, a report proved that of the 74% that say they use a budget plan, 79% fail to stick to it.
This becomes more of a problem when you realize that living within your means is not enough. If you want to make significant improvements to your financial situation, you have to spend below your means. Whatever you save can be used to boost your emergency fund, pay off your debts, or save up for a financial goal.
Don’t rely on your credit card for basic needs
You can also start avoiding debt if you learn not to rely on it anymore. Some people are quick to take out their credit cards because it’s more convenient to use it compared to cash. Not only that, you have the option to spend more than what you can afford in cash.
But that is the exact reason why you need to stop relying on your credit cards. The convenience that it brings makes it very easy to abuse it. Before you know it, your balance is already very high. The high-interest rate will quickly accumulate and make your balance increase significantly. You have to make sure you stop relying on your cards so you won’t be in danger of any of these.
Pay your balance in full
Another tip that will help you in avoiding debt is to make it a habit to pay your balance in full. You need to follow a simple rule when it comes to this.
If you can’t pay the balance in full when the billing statement comes, don’t use your credit card. The only exception is if you’re making a large purchase that offers a 0% interest rate. Otherwise, don’t use your card.
Make it a habit to use your credit card and pay the balance within the grace period. This is how you can use credit while still avoiding debt. The grace period is the time between your purchase and the due date of the billing statement. If you can pay all your balance within that time, you don’t have to worry about finance charges. It’ll be like the purchase was paid based on its cash value.
Be smart with credit spending
Since our society promotes the use of credit, it’ll be very hard to go without it. But that’s okay. You can use credit and keep avoiding debt. You just have to learn how to be a better credit user. For instance, always pay the right amount at the right time. If you want to take advantage of any credit card rewards, incorporate it into your budget and use it to pay for the things you really need. In case you want to borrow money, apply for a loan with just the right amount that you need – no more, no less.
These are only a few of the rules that you have to follow to be a smart credit user. If you do this correctly, you can enjoy the perks and convenience of using credit for your purchases.
Why you need to be better at avoiding debt
If society is so supportive of the use of credit, is it really possible to keep avoiding debt?
As mentioned you don’t have to stop using credit. You just have to learn how to use it properly. Because if you don’t, your debt will accumulate up to a point when it becomes harder to pay off. Don’t let that happen. Because if you can avoid the bad effects of debt, there are three things that can happen.
To avoid financial struggles
This is the most obvious one. Debt can really put you in the midst of a financial crisis. No matter how much you are earning if most of that goes to your debt payments, you’ll still feel like you are financially struggling.
So don’t let debt compromise what could have been an abundant lifestyle. You should be able to enjoy your income without debt trying to take it away from you.
To avoid a negative credit rating
Another reason to make an effort in avoiding debt is so you can keep your credit rating in good condition. When you abuse the use of debt, your credit report will reflect that. It can affect your credit score. If your score is low, you’ll be considered a high-risk borrower. This will lead to higher than the usual interest rates. You might not be able to get a lot of financing options when you buy a home. If you try to borrow a loan, you won’t be able to get a great deal or flexible terms.
There are other effects of having a negative credit rating so if you can avoid it, keep your credit reputation clear.
To avoid mental health issues
Finally, avoiding debt also means you can avoid mental health issues. You see, having a lot of debts can be very stressful. This is especially true if you don’t have enough money to pay it all off. Or if you’re struggling to make ends meet. Having a lot of debts can keep you awake a night. If you want to get rid of that feeling, you might want to make sure that you have your debts under control. As long as you feel in control of your finances, your debt won’t feel like a threat to your financial future.