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6 ways to stay out of a bad debt
Bad debt is bad – period. Unlike good debt (such as a mortgage), it eats away at your finances, grows uncontrollably and can cause significant personal problems. Staying out of bad debt once released from its grasps is therefore an essential life tactic.
I’ve got some good news: remaining bad debt-free for life is surprisingly simple and, as you would expect, won’t cost you a penny.
So, let’s assume you’ve successfully battled your way out of debt. Here’s how to stay that way:
- Create a budget, and stick to it.
Start by listing all income and expenditure in a spreadsheet and be ultra-honest; you should list every monthly outgoing. Next, head through that expenditure list and remove everything which isn’t essential. Lunches from the sandwich van, the Netflix subscription you hardly use, the dormant gym membership; get rid of anything which isn’t an essential. You should end up with a surplus of disposable income at the end of the process and that will remain if you stick to your budget.
- Can’t pay for it before the interest hits? Don’t buy it.
The reason you ended up in bad debt before was because you overspent and borrowed money you couldn’t afford to pay back on time. This accrues interest over time and subsequently you’re increasing the amount you owe. If you’re tempted by a purchase but need an injection of cash to make it possible, only turn to credit if A) the purchase is genuinely required and, B) you’ll be able to pay the balance before the interest hits.
- Get rid of credit cards
You can, of course, head off any prospect of leaning on credit cards by disposing of them completely. You’ve done the hard work by paying them off, so rid yourselves of their tempting grasp. Cut up every credit card you own once the balance is paid off and throw those pieces of plastic in the bin.
- Build up your credit score
A healthy credit score will help you immeasurably as you make your way through life. And while it may seem counter intuitive to borrow following a period of bad debt, it can actually do your credit score the world of good.If you trust yourself with a credit card and can pay the balance religiously before the interest is applied, your credit score will benefit as a result. Similarly, taking out a loan for the car you want if you can comfortably afford the repayments is entirely reasonable.
- Think of ways to make more money
With the advent of sites like eBay, TaskRabbit and PeoplePerHour, we can all be mini entrepreneurs. One surefire way to stay out of bad debt is to bring more money in, and you could have a talent people are willing to pay for.Handy with web design, writing or gardening? These are all services people will pay you to undertake. Why not strike up a little venture on the side?
- Prioritise expenditure
The thought of prioritising your gas bill over that night out with friends may sound somewhat unpalatable, but it is a reality you must face if you want to remain debt-free.Prioritising your expenditure doesn’t mean you’ll have to start living the life of a recluse; it simply requires you to be realistic about what you can and can’t afford to do. Enjoy yourself, but make sure you keep all bills in check. In the example above, the gas bill will always win and you’ll be better off for it.
This post is intended to give you some actionable tips for staying out of bad debt. You’ve done the hard work clearing your debts, it is simply common sense which should prevail from this point forward. Combine the tips above with a desire to remain debt-free and you can put an end to your money worries.