People can sometimes be lulled into viewing credit cards as free money and overspending without giving it a second thought. However, one of the most important things to keep in mind when it comes to credit cards is the time will come when their financial obligations need to be met. With that in mind, the single best way to avoid debt is to only purchase what you can afford. And yes, that is way easier said than done.
However, these tips on how to manage money wisely can help you do just that.
Craft a Spending Plan
The single most useful tool when it comes to avoiding debt is to craft and adhere to a spending plan. Giving each dollar you earn a purpose will make it easier to avoid overspending.
How you go about it is totally up to you. However, one of the most effective methods is to determine where your money is currently going and redirecting it to help you achieve your goals
You’ll then want to follow your spending so you can be sure you’re staying on track, and review it from time to time to ensure all your needs are being met. That’s the beauty of having a budget, which can help you see if you are spending more money than you are bringing in.
Establish an Emergency Fund
One of the line items in your spending plan should be the funding and maintaining of an emergency fund. Experts typically cite three to six months of your household expenses (including rent/mortgage payments) as the amount at which you can consider yours fully funded.
That said, it’s a good idea to squirrel away a bit more if your work is cyclical, seasonal, or freelance. Doing so will give you a cushion upon which to land if your income stream gets disrupted. This cash can also come in handy if you ever need to cover a large unexpected expense that you’d otherwise need to charge.
Automate Your Savings
Establishing automatic transfers to your savings, retirement, and investment accounts every month frees you of the need to remember to do so. Moreover, having it happen before you see that money can help minimize the temptation to use it on non-essentials.
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Pay Your Credit Card Bill in Full Each Month
You’ll experience a couple of important benefits from doing this. First, you’ll avoid making interest payments, which means more of your cash can go to serving you rather than a credit card issuer. Second, you’ll be far less likely to purchase things you don’t need or can’t afford. After all, if you’re going to pay the bill in full each month, you’ll need to be careful about what you buy.
Yes, there will be times when you’ll encounter emergency situations that may require more cash than you have on hand. But with your emergency fund as backup, that charge will be far less than it might have been. This puts you in a better position to pay it off as quickly as possible. Even better, you might be able to cover the cost completely.
Review Your Credit Card Statements and Credit Reports
Getting into this habit enables you to catch errors and nefarious activities before they become costly problems. People make mistakes and people steal. The results will appear on your credit card bill and/or your credit report. Left unobserved, these issues could cripple you financially.
Make it a point to review your card statement on at least a monthly basis when you pay your bills. Your credit reports should be reviewed at least three times a year to ensure everything contained within them is only reflective of actions you’ve taken. You can get free copies of each of your three credit reports at AnnualCreditReport.com. Order one every four months and you can keep track of your credit history at no charge.
Avoiding debt is best accomplished by not overspending except in extreme emergencies. By taking these tips to heart, you can set yourself up to enjoy a life without debt.