Tips for Avoiding Debt
Follow these simple tips for managing your money to stay out of debt
Debt can restrict your ability to make major purchases like a home or car, and while some debt like student loans may be difficult to avoid, it is possible to reduce debt in other areas. The key to avoiding debt is close management of your personal finances. If you create a personal budget for your expenses and keep a record of your expenditures, you may find ways to save money and pay off existing debt quickly.
1. Start by creating a personal budget
Examine your current expenses and create a personal budget. Start by saving your receipts and recording all your purchases for three months, so you have an idea of how much you generally spend. Use a spreadsheet to set up a budget that will automatically adjust with each expense you add. Input your salary and deduct taxes and monthly bills like rent or mortgage payments, utilities, car payments, phone bills and insurance. Then take out any charitable giving, estimated bills for groceries, clothing and household supplies, gas and expendables like cable, movie rentals and gifts.
Managing your money with a budget will give you a clear understanding of how much discretionary income you have and help you save a little bit each month. This contributes to avoiding debt in the long run. It's also advantageous to:
- Check receipts against your budget at the end of the month to see how you did.
- Compare prices at the local grocery stores and gas station.
- Use coupons and look for ways to cut back. For example, if you made your lunch everyday instead of eating out, you could save $10-20 a week.
2. Stay within your spending limits
The best way to limit your spending and avoid debt is to bring only what you intend to spend when you go shopping. Plan out how much everything will cost and take out cash before your trip, so you'll be less likely to spend beyond your means.
And, if you want to get the most for every dollar you spend, compare prices online before you shop and start clipping coupons. Every bit you save on current purchases can be saved to help you avoid debt in the future.
3. Use savings accounts to avoid future debt
Pay yourself first each month. When you get your paycheck, deposit a designated amount into a savings account. Even a small deposit on a recurring basis will add up over the long term. If initially you find it difficult to put money away each pay, review your budget and look for areas to cut back. And, once you start saving, avoid dipping into your savings account for daily expenses.
Some people find it easiest if they put their money into a savings account with a defined purpose:
- Save for unexpected emergencies. Use an emergency savings account to put away three months of your budgeted expenses in case you ever need it. This account will buy you time if you are ever unexpectedly out of work during a period of time.
- Save for a home. If you plan on purchasing a home in the near or distant future, use a home savings to put aside money for a down payment. This will help you either reduce your future mortgage payment or afford a more expensive home when the time comes.
- Start saving for your child's education. If you have a family or you're thinking about starting one, it's never too early to start saving for college. You'll not only be avoiding future debt for you and your spouse, you'll also be able to help your children emerge from school with less debt.
4. Pay off your smallest debts first with regular monthly payments
Only borrow what you need. If you find you end up using a credit card for purchases between paychecks, such as groceries, be sure you can pay these bills off fully each month. Even small debts can add up quickly, and paying them down each month can help you avoid debt and build credit.
Open a savings account with Citizens Bank today
Managing your money well is the first step to avoiding debt. Create a personal budget and open a savings account at Citizens Bank today to maintain financial freedom. For more information about financial management and our savings account options, speak to a qualified representative at 1-877-360-2472.