Preventing Debt

The best way to prevent going into debt is by not going into debt in the first place. Like it is always said, prevention is the best cure. It works both in the health sector as well as the financial one. In order to keep from getting sick, it is best to live your life so you do not get sick in the first place. In your financial world, if you live your life responsibly and within your means, you can enjoy the peace of mind that goes along with it.

A budget is your key to success with preventing debt. A budget will show you what you can actually afford to spend. Take an inventory of all your income then subtract your debts. This will include all debt servicing payments, child support, or other things that take money away each month. You may find that you do not have as much as you thought after subtracting what you pay out. On the contrary and hopefully, you may have more than you thought. A budget will be your strongest aid in helping determine your financial well being.

Some expenses will be discretionary and other non-discretionary. Discretionary items are items that you have say over how much you spend. Discretionary items are going out to eat, clothing and entertainment expenses. Anything that you can control the expense is a discretionary expense. On the other hand, a non-discretionary are expenses that are for the most part fixed. Expenses such as mortgages and car payments are examples of non-discretionary items. It would be wise to concentrate lowering your discretionary expenses as you start out on your path to being debt free or controlling your debt.

Once you have some preliminary numbers down, you will need to work on what luxuries you can do without. Do you get a manicure every month? Or perhaps weekly? Is this something you really need? Do you smoke or drink? You could possibly save hundreds, not to mention your health, just by cutting these two things out. There is nothing good to say about smoking, but with moderation, drinking is not necessarily a negative behavior. But chances are, you could save some easy cash if you do it in moderation or not at all. Do you eat out at work? Could you pack your lunch instead? Maybe take some leftovers from the dinner you made the night before? These simple things will help tremendously on keeping within your budget and not living beyond your means.

The money you will be saving can go towards paying off your smaller or higher interest rate debts first. You would be surprised how this would add up. If you prefer, you can put it in savings account and pay a lump sum to the credit card. It makes absolutely no sense to keep it in a savings account and not pay off the debt. Chances are you are getting 3% or less on your savings and paying double digit interest on your credit cards. If you pay off your credit cards with the savings, it is the equivalent

of getting an automatic hike in your savings interest, which means more money in your pocket eventually.

Going into debt is one of the easiest things a person can do. We are constantly tempted with buying things we do not need. It is much more difficult but rewarding to say no to the pressures and stay debt free. Stay away from the high interest credit cards that are making banks rich. Make yourself rich instead.

David Pierce is owner of Pay Yourself First aimed at teaching people about debt and the problems it creates.

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