How to Stay Out of Debt Long-Term

Getting out of debt is only the first part of having a healthy financial lifestyle because staying out of debt long-term is just as important. The key to achieving this is to form healthy habits around money and to set financial goals that are realistic. Money management is crucial for avoiding debt in the future.

Start With an Honest Analysis

To create a debt-free lifestyle, you have to begin with an honest analysis of your current financial situation. Although there are many methods that can help you avoid starting a new debt cycle, they will not be enough if you do not understand where your money goes every month.

Start with a budget and write down every expense. You should do this every day for a month to get an accurate understanding of your money. Then, analyze where you spend your money and how much you save. By recognizing your current financial obligations, you will be able to plan better. 

Look at Your Bills and Regular Payments

If you are like mostly people, your paycheck is torn to pieces every month by bills. When there is nothing left, it is easy to fall back into debt to stay afloat. Start by listing all of the regular payments you have to make and their amounts. Next, contact each company and ask how you can save money or get discounts. For example, there are many car insurance discounts that can help lower your monthly bill. Look at all the other bills you pay, such as home or renter’s insurance, internet, phone, cable and other services.

Once you have lowered the bills as much as possible, look at how you pay them every month. Some companies add extra fees for doing monthly installments, and you end up paying interest on credit cards if you do not pay them off right away. Make adjustments to lower these unnecessary fees by paying all the bills on time.

Build an Emergency Fund

One of the main reasons people end up in debt is because they have an unexpected expense that they cannot afford to pay, so they take out a loan or put it on a credit card. However, an emergency fund can prevent you from going into debt in many circumstances. It acts as a safety net for your finances during difficult times.

You can set up a separate savings account at your bank and categorize it as a personal emergency fund you do not touch. Another option is to use a savings app like Qapital that lets you set up rules and goals to transfer money, or you can start with a lighter option like Acorns and save your change in an app.

Remove Authorized Users

Sometimes you may be the one who is financially responsible, but other family members may have more trouble avoiding debt. You can discuss your goals and desire to stay debt-free with them. If this does not work, then you may need to take more drastic measures, such as removing them from accounts.

You can remove family members as authorized users on your credit cards and bank accounts. This will prevent them from overspending. Even if they are not creating financial havoc, you may still want to remove them from the accounts. This is because it is easier to keep track of money if only one person is in charge of it.

Lower Your Credit Limit

If overspending is a habit that is hard to stop, consider creating obstacles for yourself. For instance, you can ask credit cards to lower your credit limit. This will prevent you from charging more than you can afford and stop you from going into debt in a simple way.

Before you take this step, you have to consider that lowering your credit limit may lower your credit score. One of the metrics that affects your score is the credit utilization number, which looks at how much credit you have used every month compared to your limit. If you are going to lower your credit limit, make sure you also lower your monthly spending, so the credit utilization number does not go up.

Increase Your Income

If you want to spend more, you have to earn more first. Increasing your income may not be the simplest way to avoid debt, but it can have the best consequences. Whether you get a raise at your current job or start a new higher-paying position, the goal is to bring in more money.

You may also want to consider hustles or side gigs you can do in addition to your job to earn more. Do you have a talent you can monetize, such as painting portraits or dogs or making jewelry? Are you able to teach music or dance classes? Are there things you can create or find to sell? Consider innovative ways to earn money and explore the options.

Stick to a Money Routine

None of these tips to avoid debt will help you if you are not able to stick to a regular money routine that keeps you from overspending and going into debt. Removing authorized users or getting a discount on your phone bill will not be enough long-term if you do not change your mindset about money and develop healthy habits. You need a stable and healthy relationship with your finances.

A healthy money routine means constantly being aware of how much you earn, save and spend. You need to know these numbers every day. This is not something you calculate once a month and shove aside. You have to pay attention to your spending and savings because it is the only way to prevent debt from accumulating again.

You should review your bills every month, pay attention to any new fees and track every penny you spend. Monitor your savings and investments to make sure you are on track and have a healthy emergency fund. You can stay out of debt, but it takes work and dedication.