Avoid Debt by Sticking to a Budget and Saving Where You Can
Americans are accustomed to financing their lifestyles with credit cards, monthly installments and loans. However, it is possible to avoid debt by sticking to a budget and saving where you can.
Understanding the top reasons people get into debt and how to prevent it can help you control your money instead of letting it control you.
1. Mistaken Identity
Whether it's from identity theft or simply an error in record-keeping, [[debt collectors](https://topportal.org/5-ways-to-build-financial-wealth/)]() and credit card companies can mistakenly associate you with a debt that doesn’t belong to you. This can cause unnecessary stress and make it difficult to pay down your debts.
It’s not uncommon for people to saddle themselves with debts they know they’re unable to repay in the future just so they can buy something they “deserve” today. Getting rid of debt requires a change in mindset and self-control; it is possible to live without spending more than you earn.
Purchasing large purchases such as homes and cars is necessary for many people, especially those with children. However, if people had to save up for these purchases in cash, they would likely have to wait years, or even decades before being able to afford them. In the meantime, they’d be paying a significant amount in rent and other monthly expenses. Getting out of debt can be a long journey, but it is definitely doable.
2. Unexpected Expenses
Whether it's the boiler breaking down or a loved one becoming ill, unexpected expenses are often unavoidable. These are costs that we simply didn't budget for and can cause financial stress, especially if we don't have sufficient savings or an emergency fund.
It's easy to fall into the trap of believing that you deserve things like a nice cardigan or organic mayo, but these purchases can add up quickly. They can also create financial stress, especially if you're already carrying credit card debt.
It's important to take a step back and look at your numbers. This can be uncomfortable, but it's necessary to understand how you got into debt and how you'll get out of it. Having a plan for paying off your debt can help remove fear and stress from your finances and give you the freedom to spend money wisely. It just takes a little hard work! You can do this. You just have to decide that you're willing to make the sacrifices to pay off your debt!
3. Loss of Income
Whether you are spending on food, entertainment or paying for bills and debt
payments, a budget is the best way to keep track of where your money goes each month. It’s also a great tool to use for setting saving goals.
Many people find themselves in debt due to a loss of income, either from a job change or an illness that stops them working. In this case, they may struggle to meet their payments and debt repayments.
Living paycheck to paycheck leaves very little room for unexpected expenses or debt repayments. This can be dangerous for anyone as it can lead to a lot of stress and anxiety should an emergency arise. To help avoid this, try to save as much as possible and consider getting a side gig to increase your income if necessary. Alternatively, debt charities may be able to offer you advice on how to increase your savings and reduce your debt.
4. Necessity
A [[bankruptcy lawyer Harrisburg PA](https://www.ljacobsonlaw.com/pa/harrisburg-bankruptcy-attorney/)]) may tell you that debt is unavoidable. For example, if you lose your job, it may be necessary to take out a loan to cover the costs of living while you find another job. People also take on debt to pay for school or to purchase a home.
However, some debts don’t qualify as necessary and could be considered bad debt. Examples include credit card debt, which is a type of consumer debt that does not provide any future value to the borrower, and debts related to buying unnecessary items.
Other factors that cause people to stay in debt are emotional spending and a fear of change. Emotional spending can take many forms from buying a new wardrobe to eating out after a stressful week. The key to breaking free from emotional spending is a change in mindset and self-control. It’s also important to establish an emergency savings account with a high interest rate. This will help you build your savings faster.