Spending is a huge temptation for everyone. Hopefully as you go through the process of getting up to date on bills and reducing your spending, you realize that a lot of “needs” are really wants. Buying only what you can afford – not falling into the buy-now pay-later habit that afflicts so many Americans – is a huge step towards being debt free. But there are other ways to help keep debt in your past.
Create an emergency fund
Unexpected bills are one of the top causes of debt. An oft-repeated story recently noted that many Americans wouldn’t have the cash to pay an unexpected $400 bill. Whether you spent your way into debt or had a bad luck bill wreck your life, set up an emergency fund to help you avoid debt in the future. Saving three to six months of living expenses can insulate you against an unexpected car repair or a job loss.
Where this comes in the pay-off-your-debt timeline is open for debate. Some say to build up an emergency fund before you start paying off debt. The concern here is that you may default on your loans in the time it would take you to save enough money. Others say to wait until after you’ve paid off your debt. But then if you’re hit with an unexpected bill, you’re back at square one.
I suggest starting when you can devote an extra $20 per paycheck to savings. Ask your employer to take it out of your check and deposit it in a savings account. You can do this and see if you miss the money – your HR department will always be willing to put the money back into your check if $20 puts you in a bind.
And look closely at your particular situation. If the bill collectors aren’t at your door and you have some wiggle room, consider building up an emergency fund. Or if you’ve successfully reduced spending and see a place where you could pull money for the emergency fund, go ahead. But if you’re already avoiding creditors, it might be best to get back on their good side before you start directing too much to savings.
Manage your credit cards
Don’t use the cash advance feature. Cash advance is a money maker for credit card companies. Of course they are happy to dispense cash because they start charging interest on it immediately. You should have an ATM card that’s free to use at your bank. Use it.
Every week, check the bills that got you in trouble. Until spending within your means becomes an ingrained habit, check your credit card, store card, and any other “danger” bills weekly. While you should know everything you’ve spent, it’s easy to forget smaller purchases. When you see them totaled up, it may help you limit any unnecessary spending for the rest of the month.
Pay in full each month. Keeping away from the cash advance and an eye on your spending should help you steer clear of surprise high bills. Make sure you’re paying off your bill every month. Your goal should be to never again be in debt to a credit card company.
Delete online credit card information. If you have a problem with online spending, delete the saved payment methods from the accounts you use most often so you must enter the card each time you make a purchase. Also opt out of any notifications or emails about upcoming sales. Now is not the time to be tempted to spend more.
Compare prices
I compare the prices of items large and small, even knowing the usual price of my kid’s favorite cereal. If I’m at the store where it’s 30¢ higher I won’t drive to another store buy it. But if I’m where it’s cheaper, I’ll pick up an extra box. You should have prices in mind too, especially for things you buy often.
For large purchases, always research several options before purchasing. I’ve found that Amazon is a great resource, but not always the lowest price. I’ve bought calculators and magazine subscriptions through eBay, TVs from Costco, and cell phones from Newegg. Don’t think that one site will have all the best deals. Spend time researching your options before you spend money.
And whenever you’re tempted, get into the habit of delaying purchases – even just waiting 30 minutes can make an impulse buy seem less of a need.
Recycling and refurbs
One big change that can save money is to buy used. Refurbished computers are 30% to 50% less than a new computer and will often do everything you need. Used cellphones can save you money and last as long as the new one you’re considering. If you’ve spent your life as an early adopter, if you trade in your cellphone every year, or if you only buy new, consider used.
An easy way to start is to try a few things first. If your computer dies, consider replacing it with a refurbished one that has the same specs. Not only are you saving by buying used, but you’re also saving by skipping the latest bells and whistles. Check out second-hand clothes, used kitchen appliances, or pre-owned exercise equipment. And next time you need to replace your car, consider that buying a two- or three-year old car can save you thousands.
Don’t forget free sources. Libraries offer e-books so you don’t even have to go there to get your reading materials. Most have their print magazines available online, and some even offer free language software too. My library allows you to check out state park passes. While the entrance fee is only $5, it’s still five dollars that I save when we go hiking.
Ease back into credit cards
It’s a simple fact: much of life is easier with a credit card. While some people swear off credit cards or only use them where required (like airline tickets), most will want to take advantage of the world with credit. You should treat it like a hot bath. Stick your toe in, don’t get burned, then try a little more. If there are necessities you can buy online to save money, start by using credit for that. Then maybe add in one purchase a month – again only things you need or that are on a list.
I mentioned honesty in the first article on getting out debt. Remember that here. You have to be honest with yourself. If you check your bills weekly and have an upset stomach from all the charges, take a step back. But if you’re managing it fine, it’s okay to use credit smartly.
Notifications
Sign up for bank and credit card notifications. Some companies will send them when you have a bill due or are near your spending limit. Others can let you know if you’re about to have an overdraft or if they see unusual activity on your account. You can even get a notice for an above-average ATM withdrawal.
Temporary…or is it
Many of the changes you make to get out of debt may be temporary. You can save by buying store brands but may go back to name brands when you are flush with cash again. You can buy a used computer but replace it with a new top-of-the-line laptop. However, lots of people discover that saving money is like a game. They look for more and more ways to stretch their dollars as much as possible. Even if you move away from watching every penny, keep practicing the financial habits that got you out of debt.