After believing the myth that I needed to accrue thousands of dollars of debt for a Bachelors of Arts degree, I had to go to savings boot camp with my wife. She taught me how to save better, and make smarter saving decisions. I taught her how to use good debt to make money. This post is about staying out of bad debt (the kind that never pays you).
Say No to Bad Debt
Saving money doesn’t come natural to most people, especially in the United States. Most people build up bad debt in the form of credit cards used to buy goods that will never earn you money. Bad debt buries you, while good debt helps you earn wealth. Here are a few examples:
- An affordable car (super low lease, low monthly payments) to help you get to and from your job.
- Using a zero to low interest rate credit card to buy advertising for a business you’re starting.
- Buying a home (some debate whether this is good or bad debt).
- Buying a car you really can’t afford (car poor).
- Using a credit card to do some retail therapy (and it takes you over 1 month to pay it off).
- Buying a home at the top of your budget.
Debt Can Eat You Alive – How to Get a Handle On It
My first job out of college was barely enough to pay the rent, pay college debt payments, and cover the bills. I racked up some bad debt during my last few months of college plus my car was just totaled. The first move I made to get rid of my bad debt was to consolidate it.
This helped lower my payments, plus I rolled up some of my bad debt with my good (my car payment). You can do this with a personal loan, which is what I did.
The personal loan helped me get a better rate for my new (used) car, pay off my credit cards (high interest rates), and provide me with a significantly more manageable budget. The result was lower stress and an increased savings account.
Staying Out of Debt
If you want to stay out of debt, you need to create some new habits. It will be tough at first, but the reward is a savings account that makes you feel proud, not sweating the bill collectors, and less stress in your life. Doesn’t that sound awesome?
Start with these simple guidelines:
- Figure out your actual budget. How much money is coming in each month, how much should you be saving, and how much do you need to spend?
- Try to use cash or a prepaid debit card. This will help you stay within the lines.
- Allow yourself some breathing room. If you had a great week, try treating yourself on Saturday to some Starbucks or something similar. Don’t make yourself miserable.
- Look back weekly at what you achieved and what you can improve on over the next few days. This will give you some perspective on how well you’re really doing.
Let us know how you’re staying out of debt and share ideas that have helped you. Leave a comment!