The benefits of a debt-free life are easy to understand, but it’s important to know what challenges you’ll face and how to overcome them if you stop gambling. However, here are some things you can do to get out of debt and live with less stress. Budgeting and monitoring are two powerful tools that can help you get out of debt and stay in reality. There are countless ways for consumers who want to cut costs, pay off debt, or avoid debt altogether.
It may seem impossible, but many consumers manage to live a lifetime without debt. Lindsay Bryan-Podwin, a financial therapist, notes that it’s not uncommon for a person to go debt-free for several months but then go back to accumulating credit card debt or taking out a mortgage.
Various types of loans and credit cards can extend your debt repayment period. You create credit by making timely payments on any loan, including school and auto loans. By making small monthly payments, your loan will continue to grow each year through interest. The amount of your balance you can transfer to a card with a 0% interest rate depends on your credit score.
For someone living debt-free, that means you spend less than 43% of your income on expenses, including your mortgage. Before determining additional debt payments, you must first check your living expenses. Under this budget plan, you spend 50% of your monthly income on basic living expenses (housing, utilities, food, and transportation), 30% on discretionary expenses (travel, entertainment, shopping), and the remaining 20% on to your financial goals. For example paying off debt or saving. These are budget items you can easily cut or eliminate to free up more money to pay down debt.
If a debt-free lifestyle is your long-term goal, you may want to work on increasing your income first so you can start saving or paying extra for current debt.
The benefits of a debt-free lifestyle can be life-changing, including less financial stress, more money to save, and no interest payments. While avoiding debt and living a debt-free lifestyle can be a healthy way to manage our finances, that doesn’t mean you should forego credit entirely. If you choose to take out a mortgage and live debt-free, you will have to work harder than most borrowers to prove your worth because you have no credit history. Living without debt requires careful planning, a lot of work, and even a bit of luck.
While you can save money by getting out of debt yourself, sometimes that doesn’t work. Putting excess money into your debt is the quickest way to get out of it. Working on a sizable savings account is tough, but it’s also the most important way to avoid debt.
Rather than constantly maintaining large liquidity pools in liquid savings products (most banks offer 3 to 6 months salary in savings accounts), invest for the long term and use the borrowed funds to pay off short-term debt.
Remember, by living without credit, you’ll be paying less each month for other consumers, freeing up more room in your budget to support healthy savings. It is possible to live without a credit card, but it is certainly not a normal person to use it, which is a good thing. Savvy consumers understand that just because a credit card company gives you a high credit limit doesn’t mean you should accumulate that debt.