How Do You Avoid Debt, Temptation of Credit Versus Cash
If you think you borrow too much, you’re not alone. A 2012 study done by the political organization Demos showed that 40 percent of Americans use credit to pay basic living expenses.
It isn’t hopeless, though. There are innumerable good examples out there of people who use credit and borrowing wisely. You can be one of them if you stay committed to a few principles.
- The first, and probably most important, principle is to live with a budget and always, always, always refer to it before you make major purchases. Again, there is a reason this is the first suggestion. Nothing short of winning the lottery will improve your finances more than committing to living on a budget. In fact, look how many lottery winners end up broke or in worse debt years or sometimes months after winning because they fail to follow this principle.
- Having a lot of credit available is not necessarily a good thing. Chances are if you are struggling with debts you have more than enough credit already. As you pay down your debts work with a credit counselor from American Financial Solutions to determine the best ways to reduce the amount of credit you have available and to get to the optimum amount. While it’s true having too much credit available can affect your credit score, the chief concern is that having too much can become too big of a temptation.
- You might want to borrow for a car, but in almost every instance a newer used car is a much better deal than a brand new one. A car loses more value in the first year than any other time in its lifespan. There are multiple considerations to take into account when buying a car, but buying used is a good rule of thumb.
- Part of living on a budget is learning to plan your spending. If you need clothes, develop a plan for what you need and how much you can spend before you take one step into a store. Otherwise you will be tempted to make impulse decisions, which end up costing you more than a planned excursion. If you do go out shopping without a plan, allow yourself to sleep on some of your possible decisions before breaking out your wallet.
- Understand that much of the reason credit buying is such a problem is because most times when you buy on credit you don’t feel the pain right away. That comes later. With cash buying the consumer is immediately aware of the cost. If you buy on credit you will have to pay that money back. In fact, because you’re incurring interest, you will spend more than if you had paid cash.
Living successfully when it comes to money does sometimes mean experiencing the sadness of not buying something you think you really want. But that pain does not compare to the joy you will experience by being debt free and using your money for things in life you really do need.
Published Apr 11, 2014.