Tips of Staying Out of Debt

Most Americans nowadays are stuck looking for a way to crawl out from under a pile of bills and reduce their debt. Personal bankruptcies are at an all time high, and even our governments run over budget and into debt. The good news is that you can avoid racking up debt in the first place by implementing a few simple ideas. Use these five tips on staying out of debt to keep your wallet, and your credit, in good shape.

1. Pay with cash Avoid accruing debt by paying for all purchases with cash. Save for larger, anticipated purchases to avoid charging for them. If there are insufficient funds in your account, save up until there is enough money. Paying with cash will curb impulse buys that often lead to financial mismanagement. Layaway purchases are risky because they are often impulsive, and add considerably to your monthly budget. Paying in full, with cash, is the only way to avoid future payments on any purchase.

2. Charge minimally Lets face it, there will be times when you just have to charge something. Keep in mind that whatever you charge WILL have to be paid back, so try to charge only what you know you can pay in full when the statement arrives. Debt will accrue quickly if purchases are made under the assumption they will be paid for in installments. Also, avoid getting cash advances from your credit cards, as the fees can be as high as 25% of the advance.

3. Pay more, pay sooner For when you just had to use that charge account, save money by paying the balance in full, and pay it before the statement arrives. If you pay your balance in full before the accounts Grace Period is up, you will avoid additional finance charges. You will also avoid late fees that can result from misplaced mail and busy schedules. Be sure to read your account Terms of Service to find out just how long your Grace Period is.

4. Prepare for the worst Nothing can negatively affect your financial situation more than the unexpected. Unemployment, car repairs, and health issues can drain the bank account. This in turn leads to frequent charging and cash advances that will pile up faster than you can dig out. Prepare ahead for situations like these by starting a savings account, and keep it off-limits. Contribute a small amount each paycheck and it will quickly add up. You will be thankful to have that money in the event of a financial emergency.

5. Lower your living standards This is probably the hardest change for people to make. It is essential, however, to avoid living beyond your means. Create a reasonable monthly budget and stick to it. Allow yourself some of lifes pleasures, but cut unnecessary spending. Cooking meals at home instead of eating out every night could save $50/week or more. That money will go a long way toward having the funds to purchase with cash and pay charges in full.