How to Avoid Getting Trapped in Debt

A financial plan can position you to avoid substantial amounts of debt. Your ability to buy items that you can afford, while deferring the purchase of non-essential goods will help keep you on track. Your hard-earned money should be used toward goals, such as debt consolidation, college tuition or retirement savings. Steering clear of promotions that offer introductory credit cards and interest-free financing can help you avoid getting trapped in debt. Your determination to avoid debt may allow you to contribute toward your investment goals.

Instructions

1

Prepare a budget that reflects your monthly income and expenses. Knowing your amount of disposable income can help you avoid overspending and becoming trapped in debt.

2

Make a plan for purchasing big-ticket items such as a house, automobile or expensive electronic items. Review your gross monthly income to determine thirty-six percent of your earnings. Avoid purchases that will cause your monthly debt ratio to exceed thirty-six percent.

3

Use a debit card or pay cash for discretionary items to avoid getting trapped in debt. Deciding to pay-as-you-go for items that are quickly consumed, such as fast food, gasoline or weekend outings, will help eliminate long-term debt. You will also save money on finance charges and interest expenses, when compared to buying similar items with a credit card.

4

Avoid impulse shopping that is driven by advertising circulars. Retailers create compelling offers, which appear to be items that you must have; however, to avoid excessive debt, you must focus on buying items that you need.

5

Save a percentage of your earnings to create an emergency reserve fund. Place your savings in a bank account on a regular basis, such as every 2 weeks or once a month. Fund your account until you accumulate enough money to pay your bills and living expenses for at least 3 months. Your savings can help pay for unexpected dental costs, auto repairs or other emergencies. A financial cushion can provide a safeguard against debt.