10 Amazing Tips On Avoiding Debt

How to Avoid Debt

According to CNBC, the average American has over $90,000 of debt. The debt counseling industry is huge for a reason. 

Why? 

The short answer – because debt can be a trap that is very difficult to get out of. The long answer – many people don’t understand the impact of having too much debt and how it can affect their long-term financial goals.

Consumer debt, specifically, is very easy to acquire and use while simultaneously being super expensive to use! 

Many often find themselves heading toward a downward spiral of debt without even realizing how far they’ve gone. Before that happens, being aware of ways to avoid debt altogether can help significantly. 

So, with that said, here are 10 tips on avoiding debt.

What is consumer debt?

Before we get into the details, let’s discuss the elephant in the room – consumer debt. According to Investopedia, “Consumer debt consists of personal debts that are owed as a result of purchasing goods that are used for individual or household consumption.”

Basically, consumer debt is the personal debt you accumulate due to purchasing items for yourself or your household. 

One common source of consumer debt is credit card debt. Credit card debt is likely one of the easiest forms of debt you can accumulate. Why? Because credit cards are not only easy to use, but they’re easy to get! 

How many times have you been in the checkout line in a department store, and you’re offered 20% off if you apply for a store credit card? Or how often have you come home to find credit card offers in the mail for which you have been pre-approved? 

Credit card offers are everywhere, which makes avoiding them difficult. Then, once you have them, you can literally carry them around with you! Oh the convenience….

Other examples of consumer debt are auto loans and student loans. Again, both of which are typically easy to get.

Why you should avoid debt

Why you should Be avoiding debt.

As I mentioned above, not all debt is avoidable, but in most cases, consumer debt is totally avoidable. Credit card debt, for example, should be avoided if for no other reason than it’s expensive! The interest rates on credit cards are some of the highest interest rates for consumer debt. Some of these rates can get close to 30%!

To put that into perspective, if you spend $1000 on a credit card, you are likely to pay about $300 in interest. That’s absurd and one of the many reasons why you should avoid credit card debt.

Other sources of debt, such as auto loans and student loans, can also create just as much hardship as credit card debt. These types of debt can become overwhelming as the total, or different sources of debt, start to add up. 

Typically, when loans such as these – also known as non-revolving debt – are initiated, you know your monthly payment. However, the tricky part is that depending on how many of these loans you have, all of those minimum monthly payments can start to add up without you even realizing the actual impact. 

This process can make it extremely difficult to manage debt long-term and ultimately pay it off.

So now that you know a bit about consumer debt let’s get into ways to avoid such debt.

Tips on Avoiding Debt

10 tips On Avoiding Debt

1. Stick to your budget to eliminate overspending.

Consumer debt, such as credit card debt, is driven by overspending…simple as that. If you find that you’re constantly using credit cards to cover expenses, then you’re overspending. If you can’t pay off your credit card balance in full every month, then you’re overspending. 

The good news is you can eliminate overspending with one simple thing – a budget. Sticking to a budget can significantly improve your potential to overspend. Holding yourself accountable by using a well-defined budget will help keep your spending habits and mindset about budgeting in check.

2. look for new ways to eliminate expenses from your budget.

This tip goes along with sticking to your budget but takes the task a bit further. Your budget is work-in-process. It’s ever-evolving and will, and should, change periodically. 

As you track your expenses, you may find that you’ve budgeted for certain costs that may not be as high as you’d initially thought or that you can eliminate altogether.

Pay attention to those items. Keep an eye out for expenses to cut or reduce to continue to stick to your budget.

3. Build savings to cover emergency expenses.

Ok, sometimes things happen, and there will be times when you may have an actual emergency for which you do not have time to save up to pay for a large expense. Having money set aside in savings can help cover those expenses. 

Unfortunately, many find themselves unable to cover significant emergency expenses with regular income. Typically that means they’d have to cover the cost with debt. And what did we say was the easiest debt to acquire and use? That’s right, credit card debt.

When you have savings accumulated, the need to use debt to cover emergency expenses is significantly reduced.

Put Hold on Credit Cards

4. Put a hold on your credit cards.

If you can’t use them, then you can’t spend money on them, right? 

Did you know credit card companies will let you freeze spending on your credit cards? 

Keep in mind this is often a temporary solution as it is commonly used to avoid identity theft if your card is lost or stolen. However, you can use this method to help slow debt accumulation.

Imagine telling yourself that you weren’t going to spend any money on Black Friday sales, putting a hold on your credit cards a few days before, and actually being able to stick to your commitment! 

Why stop there? Do the same thing during the Christmas season too!

Freeze Credit Report

5. Put a freeze on your credit at all three credit bureaus. 

So, you can place a hold on your credit cards to help reduce spending. But did you know you could take that a step further? Well, you can. 

You can place a freeze on your credit with all three credit bureaus for free! You can use this strategy to manage your debt and as a method to help protect your identity.

Placing a freeze on your credit with all three bureaus stops even YOU from accessing your credit. But don’t be alarmed. You would still be able to view your credit report with all three bureaus and lift the freeze whenever you absolutely needed to.

For someone fighting identity theft, this can be a pain. However, for someone who is trying to AVOID debt, this can be extremely helpful.

To learn more about placing a freeze on your credit with all three bureaus, visit Experian, TransUnion, and Equifax.

6. Shred new offers for credit you get in the mail immediately.

Do you have a shredder? If not, GET ONE! I know this may seem like a silly thing to help with avoiding debt, but hear me out. 

I don’t know about you, but I get a TON of random offers in the mail for credit cards, new car promotions, loan offers, and more. To be honest, it is truly one of the reasons I hate checking my mail!

And I’ve personally never felt comfortable just throwing stuff out without somehow removing my personal information, even if it’s just my name. 

Unfortunately, in the past – before I got smart about it – that required me to rip all that paper up by hand and throw it into the recycling bin. That is until I got my shredder.

Now, when those offers start rolling in, I take them right to the shredder. There is no need to look through them to see if I need to consider anything because I already know I want to avoid that kind of debt. 

And, I don’t know, there’s just something about that shredder that gives me great satisfaction! I know, I know…that’s weird…but you get the point.

Not only can this process help you avoid debt, but it can also be a way to protect your identity by shredding documents that contain some of your personal data. These days you can never be too careful when it comes to sharing or discarding personal information.  

Stop Overspending

7. Remove your payment method from online stores.

Removing your payment method from online stores is a simple but effective way to prevent overspending. The point of this is to be intentional with your spending. 

Still required to have a payment method on file? Add a reloadable gift card as your payment method. That way, you’ll only spend the amount of money you have on that gift card.

For example, if you know you only want to spend $100 per month on Amazon deliveries, add a $100 Amazon gift card as a payment method each month, and ONLY use that gift card for purchases.

Taking this a step further, if you’ve memorized your card numbers, call your bank or financial institution to request a new card number, and for the love of God, DON’T commit it to memory! 

8. Budget for Gift Giving

This one can get a bit tricky because unplanned purchases for gifts inevitably occur. However, those gifts are more likely to be lower cost and perhaps wouldn’t throw you off your budget.

On the other hand, for close relatives and friends, this process could become more valuable. 

For example, let’s say one of your loved ones has a milestone birthday coming up, and you want to do something special for them. When you’re setting your budget for the year, add that person, or people, to your budget to be sure to set aside money each month to put toward their gift.

Sinking Fund

9. Create a sinking fund for large annual expenses.

I actually don’t like the term sinking fund – it sounds a bit negative to me. However, the concept is positive. 

A sinking fund is a fund used to save money for things outside of your usual savings. For example, let’s say you go on a girls’ or guys’ trip with your college roommates every year. Add that cost to your sinking fund.

This process both helps you stay within your budget AND to take advantage of good deals. 

How? Let me explain.

Let’s say an airline that flies to your desired destination is running a sale. If you have been saving money in your sinking fund, you could take advantage of the sale and save money. 

I’m using vacationing as the example here, but this fund could honestly be used for many different things.

10. Meal plan once a week to avoid an unplanned food expense.

I don’t know about you, but food has always been one of my largest expenses. I realized it was mostly because I didn’t take the time to meal plan. 

During the week, as work, school, and other activities get in the way, meals can often be last-minute decisions. Unfortunately, this can mean finding something quick to eat, such as fast food, which can add up!

One way to manage this problem is to meal plan. Meal planning can help you stick to your food budget. Meal planning can also help reduce the stress of figuring out what to eat every day, leading to poor choices that can negatively impact your budget.

wrapping it up

Finding yourself in a mound of consumer debt can be challenging. That’s why it is critical to do what you can to avoid debt. Simple changes in your spending habits, budget strategies, and willpower can do wonders for avoiding debt.

Whichever methods you chose, be sure to stick to them. Stay focused on your long-term financial goals, and you’ll eventually see improvements.

Share this Post

Picture of Krystal Norwood-Morales, MBA, CFEI

Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.

ALL POSTS

Recent Articles

Author Profile Image - Krystal Norwood-Morales

Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

Explore by category