Many people feel that debt is a natural part of life, and that there are types of debt, which are unavoidable. However you can choose to have a debt free life by making wise financial decisions and choosing to wait to make purchases until you have the cash to do it. Choose to be debt free may mean making sacrifices that will benefit you in the long run.
Emergency Funds Instead of Credit Cards
The first step to avoiding debt is to plan ahead for your purchases. This includes planning for emergencies. While you are working to get out of debt you should set aside between $1,000 to $2,000 to cover your unexpected expenses. This would include things like your medical bills, speeding tickets, car repairs or any other expense that cannot be planned for in advance. It would not cover remodeling your home or vacations. These things can be planned and saved for.
Pay Cash for a Car
One of the most common types of debts is a car loan. Generally, these tend to be quite high, and can be sued effectively to build wealth. Once you have paid off your current car continue to drive it until you have saved enough cash to pay for your car. If you want a newer car you will need to save more money. A car rapidly depreciates in value the first three years of ownership. If you are interested in saving money and building wealth, buying a three-year-old car would allow you to find the best deal on a car.
Make a Plan to Be Debt Free
People who are debt free made a commitment to themselves to stay that way. Creating a long-term financial plan that includes getting and staying out of debt is essential to being debt free. This plan should include retirement savings, paying for your children's college, and major house repairs. It should also include a budget that has regular savings each month. If you are not already debt free, you should set up a payment plan to get out of debt.
Home Ownership and Debt
Buying a home is very expensive, and it is nearly impossible to do without going into debt. However some people do save up the money before purchasing a home. If you do decide to borrow money to buy a home make sure that the amount is no more than 25 percent of your take home pay. Take out a loan with a fixed mortgage rate, and limit the term to ten or fifteen years. Do not cash the equity out of your home, because this will prevent you from building wealth and leave you with continually debt and house payments.
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