Top 5 tips to avoid falling into debt

Once you’re in debt, it has the power to suffocate your finances and trap you for years before you can pay it off. 

debt

Debt is, without doubt, one of the major concerns for young adults in their late 20’s and 30’s to try and avoid getting into, but with prices for studying, cars, houses, and other personal needs going up, it can seem unavoidable at some point to ask the bank for money.

We all need and want the best for ourselves, and although there is nothing wrong with going to the bank to ask for money, it is important to understand whether you’re in a position to pay it back without falling even further down the rabbit hole of debt.

So to help you from falling into the trap of debt or keep you on the right side of it, here are 5 pro tips on how you can control your finances.

1: Build an emergency fund

It sounds like a no-brainer, but most people never seem to build an emergency fund big enough without dabbling into it from time to time for wants and needs. 

If you want to avoid debt, starting and growing a fund will be your saving grace in case of emergencies like car repairs, house repairs, or other unexpected expenses. 

Experts recommend building an emergency fund equal to 3 to 6 months of your monthly earnings as a safety cushion in case of unthinkable events. 

Without a safety net fund, you are more likely to go to the bank to get the money, and with interest, it could take years to pay back.

2: Make a savings routine

Saving money! It’s not the easiest skill to accomplish, but it is essential for achieving your goals. 

All it takes is to set aside money each month into a savings account for retirement, holidays, or a college fund. The right amount of money to put aside each month may vary depending on your circumstances, but you should aim to save 15-20% of your after-tax income.

The best way to grow a savings account is to create an automatic transfer each month into the account. That way, you’re less likely to spend the money.

3: Keep track of expenses

Write down or keep a spreadsheet with all the incomings and outgoings each month. 

Money management is critical if you want to avoid going into debt, and knowing exactly how much your expenses are each month will help you understand how much you have left to save.

Accounting can be quite tricky on your own if you have several accounts and lots of expenses, so it might be worth hiring an accountant from Lumbview Accounts to manage your accounts and finances to keep you on track to financial freedom.

4: Only borrow what you need

If you need to borrow money to pay for something, make sure that something is worth going into debt for. Be sure to keep the loan as small as possible so that you have a better chance of paying it back. 

Borrowing money from the bank for holidays and personal goods is not what you need (this is how people rack up lots of debt)! 

Only borrow money that is an investment for yourself/your family, and your career.

5: Pay your credit balance

One of the tricks to stop you from going further into debt is to make sure you pay your credit card balance on time every month with the aim to pay it off quickly to reduce the interest rate.

Credit cards can be useful when you need to spend money for unexpected repairs that you don’t want to take out of your savings account, but just make sure that you can pay the balance every month without crippling your finances. 

Otherwise, missed payments will result in added fees on top and a bad credit score.