Nobody likes debt. But when you consider that the average U.S. household has around $5,700 in credit card debt, it’s clear that almost everyone has it in one form or another.
Your mortgage loan, auto loan, student loans, credit card bills, or other loan payments all qualify as debt. And, the more money you borrow, the more money you’ll spend in interest fees.
Not everyone has debt, though. And there are ways to avoid digging yourself into a hole that might be very difficult to climb out of.
This post talks about ways to avoid going into debt in the first place.
3 Tips for Avoiding Debt
1. Don’t take out an auto loan
This might sound like a no-brainer, but if you can avoid taking out an auto loan, that’s an easy way to save yourself from owing tons of money. Instead of opting for a new or leased car, try to save up a few grand, and do some research into the most reliable used cars.
In this Autolist study, researchers have identified the ten most reliable used cars that can be bought for less than $5,000.
Not only will picking up one of these cars prevent you from taking on more debt, but you’re also more likely to save yourself from costly repair bills (because the cars are known to be reliable).
2. Be careful with credit cards
When it comes to using credit cards, there’s one rule of thumb to live by. If you can’t afford to pay off your purchase or balance in full at the end of the month, then you shouldn’t be making that purchase on your credit card.
That’s because when you carry over a credit card balance, you get hit with sky-high interest rate fees. You’re also more likely to add onto your balance the next month.
For example, let’s say you purchase a new washer and dryer on your credit card for $1,500. You don’t pay it off, so your balance is $1,500. Then suddenly, your fridge breaks, and you need to buy a new one. Your credit card bill is now over $3,000.
Imagine if then your car breaks down, or you need an emergency pet or dental procedure?
This is why it’s so important to be careful with your credit card spending. Things can easily spiral out of control, and before you know it, you could be facing a massive credit card bill that you’re never able to pay off.
3. Live simply
Try to adopt the mindset that you don’t need new or fancy things to be happy.
For example, you can still watch TV on your old TV, as long as it still works. It doesn’t matter if your buddies all have a high-end 70-inch flat screen. In the long run, that flat screen could cost you thousands of dollars in interest fees if you charge it on your credit card, or take out a loan to pay for it.
The same concept applies to the car you drive. If your 2002 Honda starts up and safely takes you from point A to point B, it doesn’t matter what the car looks like.
And, if you’re worried that your old car might scare away a potential first date — your dating partner might be even impressed when you explain how staying out of debt is more important to you than driving a fancy car.
Money doesn’t buy happiness
When you don’t have any debt it’s a truly liberating feeling. Each time you decide to save your money, or not buy something you can’t afford, you’re literally adding to your own personal financial freedom.
Here’s to staying out of debt while living the life you want.
