5 Ways to Avoid Falling into Debt
Everyone has tough times but, borrowing during times of hardship can push you further into debt. High-interest payday and title loans are designed to offer short term relief and long term problems. According to the latest debt statistics the average consumer carries $8,284 in credit card debt. And that’s just credit cards. Factor in student loans, mortgages, auto loans, personal loans, payday loans, and it’s easy to see how debt is becoming such a major issue for most people.
So, how do you protect yourself?
1. Be Prepared
Having an emergency fund can help protect you in tough financial times. Car repairs, medical expenses, employment problems can come up at any time and high-interest loans or credit cards can lead you into a never-ending debt spiral. Try putting away 5-10% of your monthly income into an emergency fund until you have enough to last you 3-6 months if the situation ever arises.
2. Be Responsible
Lenders and credit card companies make it easy to spend money you don’t have with enticing offers of low introductory interest rates and no money down loans. Read the fine print, the interest and fees can creep up on you and end up wreaking havoc. Spend only what you can afford, pay your bills on time, and if you use credit cards, pay them off at the end of each month. Keeping your credit card utilization as low as possible will also ensure a higher credit score.
3. Create a Budget
Create a budget so that you know how well to allocate your resources and track your income and expenses. Overspending is easy when you don’t track your expenses. No matter what your income is you need to be aware of how much money is coming in and going out of your household. A budget will allow you to cut unnecessary expenses and get a general overview of your spending patterns. It will also help you to create an emergency fund and save for large purchases.
4. Avoid Cash Advances from Credit Cards
There’s no worse way to get a little extra cash. Most credit card companies charge a 5% fee for cash advances as well as a 34% APR. So a $2,000 cash advance repaid at $80.50 a month (minimum payment) will end up totaling $7,171.41 over the lifetime of the loan. Use credit cards to earn points and cashback but, consistently carrying a balance over month after month can end up costing you 3-4 times your original loan amount.
5. Improve Your Credit Scores
Having a high credit score will allow you to save money with low-interest auto loans, mortgages, and zero percent credit cards. Buying a car with cash is ideal but, not everyone has that kind of money available. Having a great credit score can be just as good as having the cash. An auto loan at 0% will allow you to keep your monthly payment affordable and put a little money aside for a rainy day. A 0% credit card can be your emergency fund until you’re able to accumulate the funds. And a low-interest mortgage can actually end up having a smaller monthly payment than rent for a similar home. Good credit can save you a lot of money and help you avoid falling into debt.
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