7 Tips for Staying Debt-Free

Kat Tretina

Updated On: August 4, 2022  •  3 Minute Read

Credit Basics, Credit Cards, Financial Tips

Americans are increasingly relying on debt to finance their lives. According to Experian . Americans’ credit spending reached is reaching record highs:

• Average credit card debt is $5,221
• Average personal loan debt is $17,064
• Average Student loan debt is $39,487

While using some forms of debt strategically can help you achieve your goals, like getting an education or becoming a homeowner, debt can have a negative impact on your life. With interest rates, you could end up paying thousands more than you originally borrowed. And, high monthly payments can prevent you from pursuing other financial goals, like saving for retirement.

Being 100% debt-free is a worthy dream. However, lifestyle inflation and external pressures can make it difficult to stay out of debt once you’ve paid it down. If you’ve recently become debt-free, follow these tips to prevent racking up a balance all over again.

1. Maintain a budget

To pay off your debt, you likely came up with a detailed budget that told you exactly how much money you had coming in and going out each month. Once you’ve paid off your balances, you may have become lax with your budget. However, that’s a costly mistake.

To stay debt-free, look for ways to save money to ensure your spending stays within its limits. Review it periodically to see if there are areas you can cut or that need adjustments.

2. Pay yourself first

It’s easy to fritter away money on mindless purchases if you don’t have a plan for your money. Instead of just letting money sit in your bank account, make sure every dollar has a purpose.

It’s a good idea to pay yourself first out of every paycheck. Set aside a percentage — such as 10% to 15% of your income — and set up automatic deposits into a separate savings account. Over time, that money will add up, giving you a substantial cash cushion.

3. Track your net worth

When you’re in the process of paying down your debt, you have your regular monthly statements to help you keep track of your progress. Once it’s paid off, you don’t have those regular reminders, which can cause your motivation to lag.

To help you stay focused, track your net worth: the total of your assets minus any outstanding debt. Seeing your net worth grow over time will empower you to stay on budget.

4. Celebrate small wins and milestones

Similarly, celebrate small wins and milestones to keep your motivation levels up. For example, celebrate six months of being debt-free reaching $5,000 saved in an emergency fund with dinner out. Recognizing those achievements will help you stay focused on your long-term financial goals.

5. Save windfalls and raises

Once your debt-free, you have to be diligent to prevent lifestyle inflation. One of the best ways to do so is to automatically save any unexpected windfalls or increases in your income. By saving that extra money, you can stay on budget while boosting your bank account balance.

6. Set your own credit card limit

While credit cards are convenient and allow you to earn valuable rewards, they also makes it easy to overspend. To stop credit card debt from creeping up on you, set your own credit card spending limit. For example, you could say that you will only charge up to $1,000 on your credit card. Once your account shows $1,000 worth of charges, you won’t use the credit card again until you pay it off.

7. Grow your income

Boosting your income is key to building wealth and staying debt-free. Work on professional development to position yourself for promotions or advocate for yourself to get a raise. If growth isn’t possible for your job, focus on other ways to boost your earnings, like developing passive income streams or launching a side hustle.

Staying debt-free

Being debt-free gives you more financial freedom, allowing you to pursue other goals without the weight of interest charges and monthly payments on your shoulders. To keep yourself from ending up in debt again, use these tips and regularly review your finances. By being diligent, you can build a sound financial future for yourself.