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4 Simple Ways To Avoid Getting Into Debt

4 Simple Ways To Avoid Getting Into Debt

Debt. It’s one of those stressful things in life that keeps us up at night, often causing depression and anxiety for tens of millions of Americans. Luckily for you, I’ve compiled a list of the four simplest ways to avoid getting into a mountain of debt — because: Been there done that.

1. Cut Back On Borrowing

The amount of debt you borrow will determine how much your credit score will be impacted. Credit limits are compared to your credit card balances, the same with loan balances and original loan amount. So try to keep your credit limit at the smallest number possible to avoid getting into a mess, in which in the future, for some reason, you are unable to pay back.

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It’s simple: the more debt you owe, the harder it is to finish paying it off. Don’t let spending get over your head — start saving! It also helps to ask yourself, anytime you are want to purchase something, do you need it, or do you want it? If you “want” it, reconsider your decisions as you don’t want to end up short in money when your credit card payment is due.

2. Reduce Your Credit Card Applications

Each time a credit score application is requested, your credit drops by a small amount. However, over time, all those inquiries can significantly decrease your credit score and affect your chances of receiving low interest.

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These days, applying for a credit card is only a few clicks away, but being approved for one is an entirely different story. In case you’re unfamiliar on how the credit scores are scaled — your welcome:

300-629: Bad credit
630-689: Average credit
690-719: Good credit
720 and up: Excellent credit

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3. Create An Emergency Fund

Here’s a lifehack that most never think of doing: start an emergency savings account and fill it up quickly until you reach at least $1000. Why? Well, you never know when you might be out of a job, or something expensive in your car breaks. So it’s better safe than sorry to have backup money, in case you’re unable to pay off your credit card bills.

The best amount to keep in an emergency fund should be around $1000-2500, which will keep you stress-free for at least a few months until you can get back on your feet. The faster you fill up your emergency savings account, the better. Additionally, the savings account can also help you catch up on your mortgage or car payments too.

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4. Find A Licensed Insolvency Trustee

Licensed Insolvency Trustee companies exist to help reduce all the debt you owe. According to one such company, Sheriff Sole & Madej Inc, their sole mission is to provide ‘debt freedom’ for those who are inundated by any debt. This licensed insolvency trustee company is also one of the biggest for debt counseling, which is strongly recommended for those in a large amount of debt. They understand credit scores like the back of your hand and know the ins and outs of eliminating debt, while also rebuilding your credit again.

Each session of counseling lasts anywhere between 10 to 30 minutes, giving you a positive outlook on life as you walk out of there. You will either be receiving advice for credit card debt, student loans or bankruptcy. For those who owe student loans, one of the biggest debt category in the US, here’s some advice from Sheriff Sole & Madej Inc:

“It is always best to start making payments right away towards your student loan, even during the six-month grace period. Also, if you are struggling to make any of your required monthly payments, you can contact National Student Loans Service Centre (NSLSC) to lower your payments so that they are affordable. NSLSC may lower the required monthly payments if you are able to prove financial need.”

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Jose Florez

Mental Health Writer

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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