Living without debt and getting out of debt are different processes. There are ways to get out of debt, including budgeting, debt management, frugal living and saving. Once the debts are cleared, staying debt-free is the next challenge. Living without debt brings distinct advantages, but it also brings its own set of challenges. Such a lifestyle requires sacrifice and discipline, such as living within your means and coming up with alternatives to debt to finance the things you need. Living without debt does not mean living without bills, however.
Close Your Credit Accounts
Close your credit accounts. Cutting up cards isn't the best course of action according to the cost reduction site uSwitch.com. If the accounts remain open, you can still use them; plus, there is the possibility that fraudsters can use your account. As an alternative, switch to a debit card with a major credit card logo on the front. This way, you only spend money that you have available.
Save an Emergency Fund
Many people have credit cards to use in case of an emergency. Instead of this, start saving money to build an emergency fund. Kathy Kirstoff of CBS's MoneyWatch.com recommends having three to six months of living expenses saved. Once you have achieved this amount, you can start placing money in another savings account or fund.
Invest for Interest Payments
Invest your savings to earn interest. There are several options available to you. If you don't have a lot of extra money currently or need access to you money, a basic savings account is a good option. Some banks and credit unions require no minimum balance, and you can take money out as you need it. The money is also insured by the Federal Deposit Insurance Corporation, so it is a safe investment option. Basic savings accounts pay lower amounts of interest than other savings options, however.
Money market accounts are another saving options for people that have a little more cash available. Money market accounts are offered through banks, credit unions and investments firms. When you place money in one of these accounts, you actually purchase shares in a money market fund. Money market accounts require higher account minimums. Amounts can range from several hundred dollars to $25,000. The minimum payment must remain in the account, but you have access to any money above the amount. Money market accounts offer higher interest rates than basic savings accounts.
Certificates of deposit are one of the highest-paying forms of savings accounts. They are available through banks and credit unions. A certificate of deposit offers a guaranteed rate of interest in exchange for leaving your money in the account until it matures. The longer the period of maturity, the more the certificate of deposit pays. Certificates of deposit can be purchased for relatively small amounts of money. They range from $100 to hundreds of thousands of dollars.
Use Cash for Your Next Car Purchase
Most people purchase large items such as cars through financing plans. However, you can pay substantially less per item if you save the money and purchase the car outright. If you currently have a car loan, MoneyCentral.com recommends the following formula: Take your current car loan and double the amount of time left on your payment plan. If you have been paying the loan for some time, however, use the remaining time left. For instance, if you have three years left on your car loan, double it to get six. Six years is how long you should make your car last before purchasing a new one. According to Karen Datko at MoneyCentral.com, this is usually feasible with good maintenance and care.
Once your car is paid off, take what you would have normally paid each month and save it. Do this for three years. Thus, taking a car payment of $300 dollars per month, you will have $10,800 to put toward your next purchase in just three years. You might also get additional cash on your current car at resale. This formula should give you enough to buy a good used car without taking on new debt.
Travel Without Credit Cards
Most of people are under the impression that taking a vacation requires credit cards. This is false, despite what the hotel and car rental industry state. If you have a debit card with a Visa or Mastercard logo on the front, most hotels and some car rental places will accept it for incidentals and deposits. If not, call the rental company ahead of time to inquire about check cards. Some companies still accept cash but will usually require several hundred dollars for a safety deposit. The money will be returned, assuming no late fees, damage or missing items.
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