Learn How To Pad Your Pockets: Why No Debt Is Good Debt

November 6, 2013
by Michelle Perry Higgins

examinerAs of October 2013, the Federal Reserve reports that the average American household owes over $15,000 in credit card debt and those with student loans owe an additional $30,000, on average. When you add in mortgages, car payments, and business loans, the weight of debt can literally be crushing.

That’s the bad news.

On the bright side, I can tell you that there are virtually thousands of dollars every month you could be saving and investing right now. With a few simple modifications to your financial habits you can start to decrease your financial burden and get on the road to living debt free.

Track your spending – Create a budget and stick to it
I’ve said it before, but it’s so important that it bears repeating: find a way to track your income and expenses that works for you and follow it religiously. Most people don’t realize how much they are spending or how little they are saving until they see the actual numbers. Personal Capital has some great tools for keeping track of your finances on your smart phone or tablet. The key is to get a clear picture of your spending habits, make categories for all your purchases, then eliminate the things that aren’t necessary. In this way, by seeing exactly how much you spend, you can set a target for saving. This will help you minimize impulse purchases while monitoring the progress of your savings goals.

Minimize your interest losses
If you were to take a look at all of your debts in total, there would be a very large number under the category called “interest.” Interest charges serve the sole purpose of adding to the bottom line of the lender and has the related effect of making your debt larger. If possible, try to pay off the debts with the highest interest first. These will cost you more in interest over the long run. Also, if you have ever considered having your debts consolidated into a single monthly payment, you may want to think again. Although this option might ease stress today, it can end up costing you a lot more in interest by the time the debt is paid. Before you choose to consolidate your loans, it is important to consider the costs and benefits with respect to your unique situation.

Pay off your credit cards faster
Get in the habit of paying more than the bare minimum for each of your credit card payments. This will not only help you eliminate debt faster, but will also help to improve your credit score; according to MyFico.com, the more unused credit you have available the better. I suggest you budget for additional credit card payments into your budget with a “slush fund.” That way, you won’t be tempted to spend it on something else. Once you finish paying off one credit card, use the extra money left in your slush fund to increase the additional payments of your next card. Once they’re all paid off, go out and get yourself something nice. Like a new retirement fund.

Get in the habit of living debt free.
The most important thing about living a debt free life is realizing how you got into debt in the first place. Once you have a system in place to help reduce and eliminate your debt, spend some time considering what changes you can make to your current spending habits to minimize the risk of going back into debt again. Things like impulse purchases, underused memberships, and excessive entertainment costs can quickly and quietly eat at your savings. Start with a few simple modifications and slowly increase them once you become comfortable.

Living debt free is one of the best things you can do not only for your pocket, but your mind as well. You will be able to live worry-free without the stress of debt weighing you down. You’ll afford yourself greater financial flexibility once you have fewer bills to pay every month. These simple steps, in addition to some patience and disciple, will help you see that the only good debt is no debt.