Living a debt-free lifestyle today seems impossible. People take on debt to put themselves through school, buy a car or home, and many other reasons. Like anything else that’s challenging, living without debt takes planning and discipline, but it can be done. Let’s be clear—a debt-free life doesn’t always mean zero debt. It means eliminating bad debt, establishing good credit, and living within your means.
What Is Bad Debt?
Are people with no debt happier? It’s certainly true that people without bad debt have less to worry about. Not all debt is bad debt. Some good debt keeps your credit score high to help you enjoy lower interest rates when you borrow money. This allows you to manage your finances better.
What’s the difference between good and bad debt?
Good debt enhances your life or adds to your worth. You might take out a loan for school, a home mortgage, or to start your own business. Bad debt means you borrow money to consume something or buy an item that will lose value. This includes vehicles, clothes, and vacations. Bad debt typically comes with higher interest rates.
How Can I simply Live a Debt-Free Life?
Eliminating bad debt and living without it is achievable with the right plan. Get started with these five tips.
1. Be Realistic
Spend time considering your finances. How much debt do you have, good and bad?
What interest rates do you regularly pay? How much is your monthly salary, and can you pay off bad debt faster, like credit card balances?
Prioritize your short- and long-term goals. Consider how you want to pay off your debt before anything else. This might mean carefully assessing your spending habits and cutting back where possible.
2. Create a Budget
Create a realistic monthly budget that covers everything you earn and spend. Start with how much money you make, and in another column, detail all your expenses. Depending on your lifestyle, these include rent, utilities, gas, insurance, savings, and other categories. Remember to put money away for savings, emergencies, and even fun activities.
3. Buy a Reliable Used Car
Before you take on a monthly car payment and gas and insurance costs, consider your area’s public transportation system. If possible, think of ways to utilize public transportation instead of buying a car. Can you move closer to work and walk? Is riding your bike a feasible option?
Most people need reliable transportation, so why not consider a reliable used car? Find a good mechanic who can offer options and provide an expert opinion—thoroughly research different makes and models.
4. Understand Need vs. Want
If you’re an impulsive shopper, develop strategies to break this habit. Some people stop ordering catalogs. Others unsubscribe from soliciting emails. You can also commit to writing down what you’d like and waiting at least a month before purchasing anything new. Cut up your credit cards and only buy what you can afford with cash.
Separate what you want from what you need. You need food and a roof over your head. You want a new outfit or jewelry. Understand the difference and stick to the budget you’ve set for yourself. Make it a habit to clip coupons and compare prices at different stores. This can help you save money when you need to make a purchase.
If part of your budget includes a savings account and emergency fund, use that money instead of a credit card when needed. This will help you avoid expensive interest rates that add up quickly. After all, that’s why you’re saving extra money in the first place.
5. Live Within Your Means
You’ve seriously thought about your financial situation and the roadmap for the future. Your plan includes a budget and limiting your spending to what you need. To live a debt-free lifestyle, you must put the plan into practice. Commit to this strategy for the future and stick with it.
It might feel funny at first. Making a change is always challenging. But after a while, this new lifestyle will become a routine and, eventually, a habit. Before you know it, living frugally and responsibly will be second nature. You’ll enjoy the freedom of eliminating bad debt and living without it.
A Life That Works for You
Ultimately, living a debt-free lifestyle isn’t the same for everybody. Make a realistic plan that works for you, and don’t be afraid to adjust as you go along. You’ll grow and experience career and family changes through the years. No matter how you evolve, keep your goals in mind and how living within your means will help accomplish them.
If you need an installment loan, contact Power Finance Texas today.