Sorry, there really is no secret to staying out of debt. What I’m about to tell you is, in fact, neither fancy nor glamorous. The secret to staying out of debt is discipline. You must control your spending.
How Do You Stay Out Of Debt?
Step #1: Identify Why You Went Into Debt
If you are in debt or have been in debt, your first task is to identify the reasons why you went into debt. You cannot ever fight against an enemy that is unknown. The reason is you are always spending too much money. At times the spending is understandable (like a house) or unexpected (medical bills), but debt means you are spending or spent too much money.
Step #2: Know Your Weaknesses
Similarly you must also know thy self. What are your spending weakness and temptations? What budget categories do you often overspend?
Step #3: Develop a System or Structure to Help You Control Your Spending
Larry Burkett suggests the following (in the book Money Matters
):
For anything that you want to buy that isn’t already in your budget and costs more than $10, you get three additional prices and wait thirty days before you buy it (or whatever period of time feels comfortable to you). That will give you time to shop for a better price, and often it allows enough time for the impulse to pass.
Sometimes you will find that full, complete, and absolute avoidance is the best policy. Jesus himself, said that there are certain things that we are better off sacrificing (like your eye) than paying a higher cost later (judgment).
Your system or structure will need to be personalized based on your spending weakness. For example, my family has developed some credit card spending guidelines.
The following is an example of some possible guidelines for those who spend too much money at the mall.
How to Minimize Your Mall Spending
- If you spend way too much at the mall you might need to completely stop going to the mall.
- Limit and list the number of stores you will visit.
- Limit the amount of time you will spend in the mall. Fact – the more time you spend in the mall, the more likely you are to spend money.
- Always shop with a list.
- Check your budget before you leave the house so you know how much you can spend.
- Leave the credit card at home and take only a budgeted amount of cash (typically the envelope system).
- Call your spouse and get permission before you buy anything over $20.
- Wait till the next day or two before going back to the store to buy the item.
Here’s the irony with controlling your spending – you start to feel more free, not more enslaved. Sure, it might be hard the first time or two, but in the end you will feel so much better – about yourself and about your budget.
Here are other suggested guidelines to help you control your spending:
- Cut up or at least freeze (literally) your credit cards.
- Cancel your credit card if you are ever in a position that you can’t make your first payment.
- Pay cash for your vehicles.
- Develop a budget and stick with it.
- Stop listening to people who tell you getting out of debt is easy.
- Stop trying to get rich quick.
- Keep every receipt for every item you buy.
- Take a friend to hold you accountable.
Photo by LancerE.
How do you stay out of debt? What do you do to help curb your spending?
{ 15 comments… read them below or add one }
Nice article with pretty good tips! I’ve been fortunate to have never been in any huge amount of debt, other than a car loan I paid off a few years ago. The main way I stay out of debt is by paying off my credit cards in FULL each month. The cards are linked to a checking account, and the money is deducted from there when I schedule the payment. If the balance on the card is more than the amount I have in my checking account, then I withdraw some money from my savings account and put it into the checking account. I don’t really have an emergency fund, but I feel as though my savings account is sizeable enough to cover both emergencies and monthly expenses.
Another thing that helps is hating the concept of paying interest. That’s why I paid off my car loan early. When I looked at all the interest I was paying, a light bulb went off in my head. I suddenly realized that I could be saving that amount of interest instead of paying it out by paying off the loan. In my opinion, for the most part, we should have interest paid TO US in the form of savings and investments, rather than having to pay out interest to others.
I like your reference to Larry Burkett’s book. Whenever I want to buy something, I usually shop around for a good deal, and never buy on impulse. It seems like a good idea to let some time pass if you want something, and to shop around while you’re waiting. If you still want that item at the end of that period, then you can make plans to purchase that item wisely.
But the moral of the story is that I don’t spend money if I don’t have it. I don’t charge a purchase on a card if I know I can’t pay it off in full each month.
It’s all about restraint. Once you can pull together all your expenses and bills, you should budget accordingly with how much income you are bringing in and finding ways to cut. Just spend less than you earn.
Good piece if info craig! thank you.
You mentioned the budget, and i think most people get in debt because they have no guiding plan for thier finances, or they do not stick to their plan.
Also having an emmergency fund is like a life jacket when drowning.
Good article Craig.
Always spend less than you make and don’t pay more than you have to.
Stay out of debt.
And remember Life is far more than things.
Good insight on the irony of discipline and feeling more free. It’s easy to be enslaved to our spending – feeling as if it will bring us freedom and joy and then we get the bill and realize it was such a waste. But when we apply some common sense discipline and learn to say “no” to the things we don’t need we do free ourselves up to be happier.
2 rules.
1. If you don’t borrow money, you can’t get in debt.
2. If you don’t borrow more money, you can’t get further in debt!
Thanks for sharing these great tips, Craig. I also agree with FinancialBondage’s two rules.
Personally, I do not advocate using credit cards. I can’t explain why, but it really makes me feel very uncomfortable to know that I’m using something I haven’t paid in full.
to stay out of debt i just make sure that i logically reason out whaever that can make me get into debt. if it is just a fancy gadget that i want to impress my peers, i beat myself down. if it is something important like a business load, i make sure that it is almost a sure thing and not a gamble. so far, i am not in any bad debt and i am not about to give up this sweet freedom for anything fancy or shiny or anyone
@kenyantykoon
Your right on – fancy gadget to impress friends is a terrible reason to go into debt.
@Melisa
Feeling uncomfortable about credit cards never financially hurt anyone. In fact, you’re probably better off for it.
@Financial Bondage
.
Yeah, those two rules are fool proof. Unfortunately, too many people break the rules
@Jason
To many people the idea of feeling free by being disciplined does sound silly. However, there is no doubt in my mind that it is true. Thanks for your comment and thanks for the good reminder.
@mal
Thanks for the great tips. Quick and simple, yet full of wisdom.
@Joe
I’m a huge fan of the old fashioned budget. Thanks for highlighting it in your comment.
@Craig
Restraint – something so many people want and need, yet too few people have restraint. Personal finance is so simple, but so hard at the same time. Thanks for your comment.
@D
Thanks for your great comment. Sounds like you have some pretty good boundaries in place and those have really helped you live on what you earn. Keep up the good work.
My husband and I are on Step 2 of Dave Ramsey’s Total Money Makeover – paying down our debt. Before he heard Dave talk or got into any of this, my husband said “Julie, you’re just freaking out because money is tight this month. We’ll be fine in a couple of weeks. Debt is normal.”
Now that he’s on board I find he’s such an enormous help, reminding me constantly that we can’t use the credit cards and have to find the money somewhere else.
That said (sorry to take so long to get to this!), I read above “Cancel your credit card if you are ever in a position that you can’t make your first payment”. Now, we’re so badly off that we’re anywhere near not being able to make any payments, but it made me wonder – instead of simply cutting up the cards, could I cancel them – remove the temptation? But would I then have to pay them off right away (impossible)?
I have reads a lot about debt reduction. You could cut up your cards so you won’t be tempted, but cancelling your card will hurt your FICO score. It’s not a good idea to do that unless they are paid off. If you cancel them they can make you pay the balance immediately. I have just cut up the cards.You’ll know that when the card expires they will send you a new one. Another temptation , but hopefully you will be well on your way to paying it off and you won’t want to go back into that sort of slavery.
It was hard to control spending and it took a few years till I really got it. Now it’s not so bad.
By not buying what I cannot afford to pay for with cash!!! Genious right?
Regarding credit cards, first I highly recommend reducing the number of cards you have to one or two. I eliminated all gas and department store cards, and so I only have two cards: AMEX and Discover. Next, I only have one in my wallet at a time. Third, my newest budget trick is to LOWER my credit limit – so when the limit is reached for the month – I’m done!! It’s easy to check balances by phone or online, so I frequently verify my credit available and thus always know how much is left for my budgeted expenses.
For those of us who are still working on controlling impulse buying ( and I mean even buying that extra pack of paper towels because it’s “on sale”), this has really helped me slow down the spending.
A friend of mine used to say if you are having money troubles the answer is simple – make more and spend less. How true. Yet how hard for so many of us to truly understand, and to implement.