How to Avoid Debt in Personal Finances

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1

Create a budget. Use a pre-made budget spreadsheet or create your own. List all fixed expenses such as mortgage, car payment, insurance premium and utilities. List all fluctuating expenses such as gas, groceries and eating out. List your income. Ensure that your monthly expenses do not exceed your income and that you first put money towards fixed expenses and debts before planning for non-essentials.

2

Pay bills on time. Set up a bill payment service online through your bank or mail out a payment as soon as possible when you receive a bill. Do not pay bills late.

3

Pay down all current credit cards and other debts. Ensure that all credit cards are a maximum of 10 percent of their total credit limit. For example, a credit card with a $1,000 credit limit should have a maximum balance of $100.

4

Do not apply for other credit card opportunities. Apply for new credit cards only if you do not currently have one or you are adding a credit card to help your credit score.

5

Create a savings account and savings plan. Ensure that your savings account has at least one to three months worth of expenses saved up for a rainy day.

6

Understand the interest rates on your credit card. Pay credit card balances in full each month to avoid excess interest charges and know the interest rate on each credit card in the event you do need to carry a balance.

7

Buy only what you need. Do not use credit cards or loans to purchase items that you do not need or cannot afford. Treat a credit card purchase like a cash purchase and only purchase items you can pay in full when the bill comes in.

8

Do not live beyond your means. Do not exceed your monthly spending limits set up by your budget and do not live off of credit cards because you cannot afford your bills. Purchase items that are within your budget. For example, do not buy a car with a $600 a month payment if you cannot actually afford it.

9

Take debt management and personal finance courses to help educate you on healthy spending habits, family budgeting and debt management.