The Gerber Life Parenting Blog

Avoiding Debt: Five spending habits to stay on the right path

July 10, 2014

Cutting Credit CardsIf you fall into debt, finding your way out can sometimes seem nearly impossible. As interest continues to compound, your payments increase and the strain on your finances worsens every month. To prevent this from happening, avoid debt in the first place by practicing these five smart spending habits.

1. Make a budget

Some people attempt to manage their finances without creating a formal budget. Unfortunately, living without a budget may cause you to spend more than you earn, which quickly leads to debt. When drafting your budget, list each expense separately, such as food, rent or mortgage payment, gasoline, electricity, heating fuel, child care, transportation, pet food and entertainment. Avoid debt by using the budget to keep track of your spending each month. Change your habits as needed if you find that you’re spending more than you earn or can afford.

2. Don’t overuse credit cards

Although using a credit card can raise your credit score, opening too many credit card accounts is a bad idea. With so much credit available, you may be tempted to spend money you don’t have. Furthermore, if you have multiple accounts, it can be difficult to keep track of them all, which results in late fees and penalty interest rates.

3. Pay bills in full

Another important practice to help avoid debt is paying off credit card balances, as well as other bills, in full every month. This prevents interest from accruing, which increases the total amount you will pay for each purchase you made. If you cannot pay the entire balance, make the minimum payment plus whatever else you can reasonably afford until the balance is paid in full.

4. Save money each month

Even the most careful spenders can run into trouble when an unexpected expense, such as a medical bill, causes them to go over budget. To prepare for unexpected expenses, maintain a savings account and don’t touch the money in it unless you absolutely must. According to the American Institute of CPAs, an individual should have at least three to six months’ worth of living expenses in a savings account at any given time. So plan to put money from each paycheck into your savings account.

5. Learn to say “no”

Trying to please everybody to make them happy can have unintended consequences, such as debt. Learn to say “no” to family and friends who expect you to spend more than you have or want to spend. Don’t buy your kids everything they ask for, and don’t lend money to family members who never pay you back.

By taking charge of your family’s finances, you’ll be able to curtail overspending today to avoid debt tomorrow.



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Categories: Saving Money
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