Stay Out Of Debt!

Getting yourself into bad debt is a situation that it is best to avoid. If you manage to get too many debts that you can not pay, then you are letting yourself in for a very unpleasant experience. If it goes too far, bad debt is something that can affect you for many years – even for your entire life. It is possible to fix your financial situation if you fall into bad debt, but the best thing to do is to avoid bad debt in the first place. There are several key things that you can do to ensure that you avoid the bad debt trap and keep your finances in the black.

Work out a budget

You will surely have heard people talk about the importance of budgets before. Your budget is your financial life line, and it is imperative that you make one and stick to it, so that you always know where your money is going. The first thing to do is to make a list of all of your incoming money. This is not just limited to your wages – include any sort of income that you might get from investments, incoming rent and so on. Then, make a list of all of your expenses. This list needs to be very comprehensive in order for your budget to work properly. Include your main expenses such as your rent or mortgage payments, your electricity bill, food, and your travel expenses. But do not forget other expenses as well! There are things like your mobile phone and your internet bills. You will want to make some concession for toiletries such as hair products, make-up and shaving products. Do not forget to put money aside for clothes as well. Another thing to think about is entertainment – tickets to the movies, concerts, a nice bottle of wine. You need to make a list that is representative of your life. If you make your budget too strict then you will not want to stick to it, and you will end up splurging without thinking. Making your budget realistic is the key to success. You can maintain your budget on paper, but it might be easier to use an online budgeting tool, or an Excel spreadsheet. This way you can alter your budget during the week or month if the need arises.

Get rid of the credit cards

Credit cards are the number one trap into bad debt. If you have ever gotten a credit card you will remember the excitement when you first received it – it is as though someone has given you free money! The first instinct is usually to go out and spend whatever your limit is, to have a shopping spree. You rarely think about the repayments until further down the track, when the bill comes and you suddenly become aware of the amount that you owe. You will probably then pay back the amount bit by bit – but at the same time you will be paying a high interest rate on what you do owe. Sometimes you will be paying back nothing but interest, and not reducing your debt at all. This is where credit cards become dangerous. The debt will not stop rising, you will keep needing to pay the bill, and you can easily get in over your head. Things can get even worse for you if you have more than one card. You can easily find yourself in tens of thousands of dollars worth of debt, with no way out. The best thing you can do is to cut up your credit cards – right now! Pay off any remaining debt and do not use credit cards again. If you can not afford something out of your existing money or savings, then you can not afford it at all – putting it on a credit card is not going to make things better.

Pay your bills first

Your first priority should always be to pay your bills. Before you spend money on that dress you have been eyeing, or that fun new gadget, ensure that all of your bills are up to date. Spending on luxuries is more than fine, but only if you can afford it. Once your bills are paid, then you can work out how much money you can afford to use to splurge. But do not forget, you want to put some money away into savings as well! Having a nest egg put away for emergencies or for a big financial aim is important and is a big step towards your financial freedom. And freedom is what you are aiming for – clearing up any debt, avoiding new ones, and being smart with your money – this is what will put you into a comfortable state financially.