How to avoid Debt
Debt is often described in negative terms. But borrowing money, or ‘taking on debt’, isn’t necessarily a bad thing. Manageable debts, that you can comfortably pay back over an agreed period, are often necessary in order to take that next step in life.
It’s only when debt repayments become unmanageable or unaffordable that debt becomes a problem.
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How to avoid debt
The implications of being in debt can be massive – and those sleepless nights worrying about covering all of the bills are proven to take their toll on your mental well-being.
Well-meaning friends and family will often give you similar advice: “Don’t spend what you don’t have!” – but with so many financial pressures surrounding us, it can be difficult staying out of the overdraft and away from those credit cards.
Here are some tried and tested tips on how you can avoid slipping up and finding yourself with spiralling debts…
Understanding your financial situation
It’s very difficult to keep an accurate track of how much money you have – especially considering how direct debits, standing orders and recurring card payments can make money disappear from your account before you’ve even seen it.
Having a better understanding and more control over your finances does help. Consider sitting down with a pen and paper to calculate what goes in to your bank account – and what goes out.
Begin by making a list of money that comes in to the household – then compare it to your costs each week or month. Make sure you include everything; rent, mortgage, council tax and bills. You might even want to add in other things that you know the cost of each month – fuel and travel costs as an example.
When you’ve got your ‘in’ and ‘out’ figures – the difference between the two is your disposable income (the amount left over). How you spend this is entirely up to you, but understanding exactly how much it is goes a long way to making sure there’s enough left in the bank to cover all of your costs so you can live within your means.
Save - even just a little
Studies show that the most effective savers are those who put away small and affordable amounts each month – and not those who struggle after putting away a big proportion of their disposable cash.
Rather than seeing saving as a burden, find a small amount that you can live without. Budgeting really helps with this. When you understand how much disposable income you have, you can put a little of that into a savings account.
Rather than seeing this as a fund to take from when you see a big purchase you’d like – consider it an ‘emergency fund’, giving you some breathing space should you ever have an issue that limits your income or heavily impacts your out-goings.
Be wary of credit
It’s easy to think of credit as being there for when you’d like a luxury purchase or treat – but in reality, a huge number of people are now turning to credit to just make it from one payday to the next.
While payday loans, overdrafts and credit cards can look attractive when you just need to make it a few more days – they’re actually likely to make next month a lot harder, as you’ve now got an extra out-going to consider before payday arrives.
Try to think beyond the short term if you’re considering easing financial stresses by getting credit. Tightening the belt this month can save a lot of sleepless nights going forward.
Trim down those out-goings
A 2016 study showed that over half of all UK adults do not know how many direct debits and standing orders they have coming out of their bank account. As a nation, we waste billions of pounds every year on direct debits for services we don’t use.
Hopefully, getting to grips with your budget should make you aware of what’s going out of your account – and when you understand what those costs are, you might be able to make a few cuts that’ll help elsewhere.
If you’ve got a gym membership you’re not using, a TV service you can live without or breakdown cover on a washing machine that you no longer have – it might be time to cancel a few of these services! £10 or £20 a month might not feel like a great deal now, but when you add it up over months and years it’s a sum of money that is better in your pocket than anyone else’s.
Already in debt?
If you’re reading this and wishing you’d taken some of these steps before you found yourself in debt – don’t worry.
You’re not alone if you’re facing financial issues. The important thing is to talk to someone sooner rather than later – debt has a habit of spiralling out of control if you don’t get to grips with it as quickly as possible.
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