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Becoming debt free is a great experience. You must have gone through a lot to reach this stage in your life. Looking back, you think about the sacrifices that you had to make and the various temptations that you had to overcome. But while you have gone through highs and lows just to become debt free, you need to know that your journey is far from over.
You know how people has to continue dieting and exercising to keep their ideal weight? The same is true to maintain debt freedom. It will not be as tough as losing weight but there is still effort to be exerted.
3 habits that will keep debt problems away
You must understand that staying debt free will entail some work. There is a conscious effort to correct the mistakes that you made in the past. Obviously, your old life is no longer something that you can follow. There are changes that you have to make in order to ensure that you will keep your debt freedom.
There may be any changes but there are 3 important personal finance rules that you need to follow to keep your new found financial freedom. These three are vital because they result in several other habits that will all contribute to making you a smarter manager of your personal finances.
First is budgeting. You want to make sure that you will live within or below your means and the best tool for this is a budget plan. This habit basically encourages you to consult your budget at all times. You have to know when a purchase is to be made or when it shouldn’t. This plan will identify your income and the various expenses that it finances. If you always consult your budget plan, you will never be in danger of overspending. That means you will not have to resort to credit for the important expenses that you have to make. In case you are unsure of how you can do this, you can always go to BudgetWorksheets.org to find the right template that you can follow. You can start with this and slowly revise your budget as you see fit. Take note that this is not something that you do only once. Your plan should continue to change as time goes by.
The next important rule to maintain debt freedom is smart spending. This can be easily done if you have a budget plan. You simply have to stick to your budget and decide which expenses must be prioritized. But beyond that, it is important for you to remember that smart spending is not just about saying no when you cannot afford a purchase. The real test is saying no when you can afford to buy something. Being smart is prioritizing savings before you purchase unnecessary expenses that you can live without.
Speaking of saving, that caps off the three rules that you have to follow while living a debt free life. It may surprise you but there are actually consumers who never spent more than their income but ended up in debt when an emergency struck. They were not prepared for the unexpected expenses and that pushed them to borrow money to help tide over that immediate cost. If you have your emergency fund, you can avoid this possibility. Another reason to save is for your financial goals. You want to retire in comfort and that means you have to save up for it. If you want to buy a home and you don’t want your mortgage payments to end up ruling your future finances, save up for a portion of home buying price.
All these three will help you reach the personal goals that you have for yourself and your family (or future family). Now that you have reached this stage in your life, it pays to take the effort to make sure you will experience it for a very long time.
Being debt free does not necessarily mean zero debt
There is a popular misconception about debt freedom that you also need to revise. Being debt free does not necessarily mean you will be completely out of debt. When you do not have any debt, you will keep your credit history thin. That will not bode well for your credit score. When the time comes for you to borrow money for your mortgage, you might be given a high interest simply because you have a low score on your credit rating.
Some people are quick to implement credit card debt elimination and while this is helpful, it does not solve the problem. What we suggest that you do is this: eliminate debt but not the credit card. You can continue using your card while keeping yourself free from debt. You just have to make sure that purchases made with your card are budgeted so you can pay for it immediately. Not only that, you want to make sure that you understand the features of your card. That means familiarizing yourself when it comes to finance charges, interest rates and grace periods. Knowing what these are all about will help you make better spending choices when it comes to your credit cards.
Going beyond credit card debt, you also have to identify the type of debts that are actually good for you. These are the debts that will help put money in your pocket like home loans, business loans and student loans. These all contribute to your personal wealth.