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How To Prevent A Debt Relapse

Hands of woman making a budgetA lot of people have fought their way out of debt and I commend them for this, especially if they had a huge amount of debt. I read recently of one couple in their mid-50s who had accumulated over $100,000 in credit card debt. It took them five years to pay it off but pay it off they did. Many people in their position would have declared bankruptcy. I think it’s great that they did the ethical and moral thing and paid off all their creditors.

Have you fought your way out of debt?

If you’ve managed to claw your way out from under a big pile of debt, you must feel great. You can wake up in the morning knowing that you’re going to have a great day free of harassing phone calls from creditors or collection agencies. You now have money that you could save or splurge on something special like a cruise or vacation to Hawaii.

First, change your habits

If you want to keep from relapsing into debt, the first thing you need to do is change your habits. You need to think seriously about why you got into trouble with debt in the first place. Did you spend recklessly or lose track of your spending? Were all those special credit card offers with bonuses, points and mileage too tough to pass up? Sit down someplace quiet and make a list of those things you did that got you in trouble in the first place so you can make sure you don’t do them again. Of course, none of this is relevant if the reason why you got into trouble was something you had no control over such as an automobile accident, unemployment or a medical emergency.

Shred all your credit cards but one

If you have multiple credit cards, you should shred all of them but one. If you can’t bring yourself to shred those cards, give them to a friend or relative to take care of so they are out of your reach. Try to use the one card just for emergencies. You could also use it to make purchases but only if you can pay your statement each month. You probably got into trouble with credit card debt by carrying balances forward so that your debt just kept accumulating until it snowballed out of control.

Create a budget

The best way to keep spending under control so that you don’t relapse into debt is to make a budget. Record all of your spending for several weeks – right down to that 50 cents you spent on a soda – then divide it into logical categories such as food, entertainment, transportation, medical expenses, clothing and the like. Be sure to include any recurring monthly payments like an auto loan. Then carefully review your spending. If you find that it exceeds your income, you will have to find places where you can make cuts. Spoiler alert: if this is the case, you can just about assume that this is why you got into trouble with debt and will need to take corrective action.

What your budget can teach you

Once you’ve gone through the process of identifying and categorizing your spending, you will know precisely where your money is going. You could then set some spending limits. For example, if you find you’ve been spending $400 a month on food, you could set a limit of $300 and put the remaining $100 into a savings account. The important thing is to know where your money is going and stay on your budget as this is the best way to keep from relapsing into debt.

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