Living a debt-free life is a dream for many people. No one wants to live their lives while thinking about debts all the time. No matter what debt it is: student debt, house payments, credit card, etc. everyone should do their best to get rid any of these debts.
Being debt-free is also considered by many as when you can finally live your life to the fullest. It is the time when you finally can work toward your goal and better yourself. Your countless dreams about a life won’t make it happen, nothing happens without putting in the work.
But I don’t want you to keep dreaming about being debt-free – I want you to act on it. So, here are five actionable tips you can do to realize your dream to be debt-free.
1. Follow the golden rule of personal finance
The rule I’m talking about is the 50/30/20 rule. This rule was coined by Elizabeth Warren in her book titled “All Your Worth: The Ultimate Lifetime Money Plan”, which was released in 2006. The rule got so popular that many people including financial experts often mention it.
The idea behind the rule is you spend 50% of your monthly income on essentials, 30% on luxuries or things that you want, and save the last 20% into your savings account or put it into paying your debts. The rule is very easy to follow and could be fun as well.
This way you know you won’t spend too much money on useless stuff and always have money to pay your debts. And most importantly, you won’t increase your debts.
2. Don’t rely on credit cards
Credit cards are very convenient for a lot of people and pretty much changed how people spend their money. Paying for stuff. Buying one or two items occasionally, or even pay for your necessities. But the thing is, credit cards are the number one factor that puts people in debt.
Stop using credit cards for everything. Try to only use them for emergency spending. Also, train yourself to spend only the money that you have. If you don’t have money to buy something, wait and save up money until you have enough.
3. Use automatic payments
I think at this point, every bank has automatic payments feature that every customer can use for free. So why is this feature important? Paying your debts can be difficult because sometimes you just feel like using your money for something else. That urge to use your money for something instead of paying your debts wouldn’t be a thing thanks to this feature.
You can also prioritize your bills first if you want. But, the most important thing is that now you won’t miss any payments. Your credit score is safe, and your debts are going away.
4. Pay your debts in full
This is probably the best thing anyone can do to get rid of their debts. Even more considering that many credit cards have fine prints that most people don’t read anyway. These fine prints could screw you over badly. So, to play it safe, just pay your debts in full and so you don’t have to worry about the interest charges or missing any payments.
Also, there is a myth that says carrying a balance on your credit cards will and can improve your credit card score. Not only that is debatable it is always better to pay your debts in full. If you can’t pay your debts in full, try to pay as much as possible. The less balance you have the better it is.
5. Living within your means
This tip applies to everyone no matter how deep in debts they are or whether they have debts or not. Living within your means will heavily help you reach whatever financial goals you have.
It is also important to calculate your debt-to-income ratio to figure out how much money you can spend each month. Doing it is easy, just sum up all your monthly debt payments and divide the amount with your monthly gross income.
If the ratio is below 15%, you are good. 20% is the caution zone and means that a big portion of your income goes toward paying off your debts. If it is over 30% or more, that means you have to cut down your expenses immediately.
It is not difficult if you try
Living your life debt-free isn’t as difficult as you may think. Practice patient and only spend money that you have. Stop relying on credit cards, and you’re already actively cutting your potential debts. Remember that your life will be much better without debts.
Interesting related article: “What is Personal Finance?“