THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE SEE MY DISCLOSURES. FOR MORE INFORMATION.
Debt can be a silent financial burden, creeping into your life through seemingly harmless choices and unexpected expenses.
Once there, it can feel like an uphill battle to regain control of your finances.
However, avoiding debt is not just about saying “no” to spending; it’s about creating habits and making informed decisions that set you on a path to financial stability.
In this article, we’ll explore ten practical strategies to help you steer clear of debt, from budgeting and smart spending to building a financial safety net.
By adopting these approaches, you can take charge of your financial future and enjoy the peace of mind that comes with a life where you avoid debt.
Let’s delve into the essential steps you can take today to avoid the pitfalls of debt and secure a more prosperous tomorrow.
Why You Want to Avoid Debt
Before we discuss how to avoid debt, let’s first understand why we want to avoid it.
The biggest reason is that debt holds you back.
When you are in debt, you are working for someone else. Every dollar you earn is done to pay someone else to satisfy your debt.
Think about it: the money you earn is to pay your credit card bills, auto loan, and any other debt you have.
You are essentially working to pay someone else, not yourself.
Sure, you will use some of the money you earn to go out with friends or take a vacation, but most of it goes to someone else.
When you are free from debt, you are now working for yourself.
You can save and invest the money you earn to build wealth and hopefully become financially independent.
So, if you are in debt, keep this in mind.
It helped me to dig out faster because I was mad I was spending 40+ hours a week at a job I hated and had no money to show for it.
How To Avoid Debt: 8 Strategies
#1. Live Within Your Means
The most important way to avoid debt is to live within your means.
This means that if you don’t have the money for something, you can’t afford it and shouldn’t buy it.
This is harder than it seems since our society has become all about instant gratification.
Everyone needs to have things now and can’t put off buying things.
Add to this advertisers who can tap into our emotions to get us to buy, and it’s no wonder so many of us are in debt.
How do advertisers trick us into spending our money?
They know that the emotional side of our brain works faster than the rational side.
So they tap into our emotions, and we buy.
When you have buyer’s remorse a few days or weeks later, the rational side of your brain has caught up, and you realize you don’t need or want the item.
Unfortunately, it is too late as we have already bought the item.
But you can beat advertisers at this game.
Here are a few games I like to play to help me overcome the urge to buy things in the moment.
- The Waiting Game: When you have the urge to buy something, take note of it and wait a week or so to see if you still want it. You will often find that you don’t want it any longer.
- The Pause Game: Similar to the waiting game above, take a few minutes instead of a week to think things through. This doesn’t work as well as the waiting game, but it will help curb some of your spending.
- The Stranger Game: With this game, imagine someone standing before you. In one hand is the item you want. In their other hand is the cash that the item costs. Which would you rather have, the item or the cash? If you choose cash or hesitate, this is your sign that you should not buy the item.
- The Right Now Game: This game asks you to ask yourself a question: If you could use the item right this moment, would you? It works best for clothing: Would you wear this item right now? If you answer no, then odds are you don’t need it and shouldn’t buy it.
The key ingredient in these games is to get you to stop and think.
The more you can do this, the less money you will spend on a whim.
And what if you still want the item?
If you don’t have the money to buy it right now, you need to save up for it.
It might not seem fun to put off buying things until you have the money, but it will make you appreciate the things you have so much more.
And if you want more ideas for games, here are my favorite money saving challenges.
#2. Set Up a Budget
Analyzing your spending and knowing how much you have to spend will go a long way toward helping you avoid debt.
There are three ways for you to track your spending.
- Excel Spreadsheets: This is a manual process, but it is great for those who like a hands-on approach. Check out this post for free spreadsheets to download.
- Tiller: Similar to Excel spreadsheets, Tiller works off of a Google Sheet. It is still spreadsheet-based, but it automates most of the process. You can completely customize the sheet to your liking and still automate 99% of the budgeting. You can learn more here.
- Empower: If you want to fully automate your budgeting, there is Empower. This free app will allow you to set up specific categories to track and will update automatically for you every day. You can learn more here.
Take some time to figure out which solution is best for you and your needs.
I know that some of you might see the word budget and get nervous.
A budget isn’t restricting your spending.
It helps you to spend your money in a way that makes you happiest.
Right now, you are probably just spending money on things, thinking they bring you happiness.
In reality, they don’t, which is why you spend money on so many random things.
By budgeting, you learn what you value and spend your money there.
You enjoy life now and are still making progress towards reaching your goals.
But what if you really don’t want to budget?
Sit down with a pen and paper and make two columns.
In the first column, write down all of your expenses that are absolutely necessary, such as food and shelter costs.
In the second column, write your other expenses, such as entertainment and gadgets.
Start tracking your spending in the non-necessary column, as these expenses tend to get us into the most trouble.
#3. Be Happy
If you want to know how to avoid debt, the answer is to be happy.
If you are depressed or bored, odds are you will spend money frivolously.
Take me for example.
After I graduated college, I got depressed and started spending money to make me happy.
Buying things provided me with a temporary high.
Unfortunately, it wore off quickly, forcing me to buy more and more things.
It wasn’t until I understood myself and began to take better care of my emotions that I overcame my bad spending habits.
You need to take some time and figure out what makes you happiest.
For a great read that will help you think about this, check out this post.
You should also review your budget to help you remember and see how you have spent your money.
When reviewing your expenses, think about which ones made you happy, not just when you bought the item but also now.
You want to find the things to spend money on that will bring you long-term happiness.
#4. Don’t Buy Love
This tip is related to the above point about being happy.
You need to love yourself and value yourself.
Some people think they need to buy things for others to be loved.
Any person worth loving doesn’t need you to buy them things for them to love you.
They will love you for just being you.
When I was in college, I learned this the hard way.
I bought things for my then-girlfriend because I thought buying her things was how I showed her I loved her.
The truth is, I didn’t need to buy her a thing to show her I loved her.
Learn to love yourself because you are special, and understand that others will love you for this reason as well.
It may take some time to raise your self-esteem, but it can be done.
Here are a couple of books I enjoyed reading to help me become a better person.
#5. Don’t Compare Yourself to Others
I’m sure you’ve heard the saying, “don’t keep up with the Joneses”.
That statement is 100% accurate.
Trying to keep up with others is pointless.
Learn to love what you have, and as I mentioned above, live within your means.
In fact, the Joneses, who have all that stuff, are most likely in mountains of debt themselves.
Don’t believe me? I encourage you to read The Millionaire Next Door.
It will open your eyes to how the majority of the rich live.
You won’t spot the typical millionaire.
They will look like just an average person.
The person you see who looks like a millionaire is farther away from millionaire status than you when you consider all of their debt.
I learned this through my last job working for the rich.
They are just regular people you would never know are worth multi-millions of dollars.
Don’t let people tell you what to buy, how to live, and where to spend your money.
By listening to others, you are guaranteed to get yourself into debt. Make these decisions for yourself.
#6. Learn That Credit Cards Don’t Make You an Adult
After you graduate and enter the workforce full time you’re a golden child to financial institutions.
Your credit score is most likely good, and you have a newfound income stream; both are stellar characteristics in the eyes of a lender.
Soon enough, you’ll receive credit card offers in the mail with bonus rewards points, travel perks, and cash-back offers.
Don’t accept them all, or else you will quickly find yourself in a mountain of debt.
Decide the most appealing offer, accept it, and throw away all the rest.
Having several credit cards doesn’t make you financially responsible.
In fact, just the opposite is true.
Being a responsible adult means knowing your limitations and spending within your means.
It’s not about having the most credit cards or the highest limits possible.
So, if you choose to use credit cards, limit the number of cards and use them wisely.
#7. Use Cash Instead of Credit Cards
On the flip side of the point above, paying with credit cards may be very convenient, but it’s the easiest way to rack up debt.
This is how people end up maxing out their credit cards every month.
When paying with cash, you will only spend what you have.
This will save you from paying interest on your credit cards if you don’t pay the balance in full by the end of the month.
To avoid debt, carry your credit card only for larger purchases for which you want the added protection of buying on credit.
Otherwise, use cash for your purchases.
#8. Pay Your Credit Card on Time
If you decide to use credit cards, it is critical that you pay them in full every month.
The minute you stop doing this, you start the long journey into debt.
This is because you get comfortable having debt.
In the first month, you might feel nervous opening up your statement and seeing the balance, but you will pay the minimum and quickly forget about the rest of the money you owe.
The problem with forgetting is that you will keep spending as usual.
When your next statement comes, you will be shocked at the even larger amount you owe.
You know you can’t pay this in total, so the cycle repeats: you pay what you can, keep spending, and the balance grows.
#9. Use Your Credit Card Like a Debit Card
The main difference between a credit card and a debit card is that with a credit card, you typically have 30 days until you have to make a payment.
With a debit card, the money you spend is taken from your checking account right away.
Using a debit card can be a great way to make sure you never end up in debt.
But there is a downside.
If your card is hacked, they take the money in your checking account.
And most banks won’t refund you the money until they investigate the fraud, which can take months.
#10. Have an Emergency Fund
It might not sound like having an emergency fund is a way to live debt-free, but it can be.
Having money saved up helps you when unexpected expenses come up.
Instead of having to put them on a credit card and make monthly payments, pay for the expenses in full.
Also, should you give into temptation and overspend, you can use some of your savings to pay off your credit card bill.
The only catch here is not to avoid making it a habit. You want this money for emergencies, not a weekend spending spree.
Final Thoughts
The overwhelming theme for how to avoid debt is to love yourself, learn to not compare yourself with others, and to stay away from credit cards.
If you can learn to do these things, you will be well on your way to avoiding debt.
And the sooner you start avoiding debt, the sooner you can start growing your wealth and getting ahead financially.
But what if you already have debt?
Learn how to pay off your debt quickly so you can get ahead financially and not have the weight and stress of being in debt any longer.
- Read now: Use Dave Ramsey’s baby steps to build a financial foundation
- Read now: Discover the biggest credit card mistakes most people make
- Read now: Learn the difference between good debt vs. bad debt
Jon Dulin is a personal finance writer and founder of Money Smart Guides. Jon has been helping people improve their finances for over 20 years through personal coaching and while working for a financial planning firm. Jon understands every individual’s situation is unique and there is no one-size-fits-all personal finance solution. He helps people with personalized guidance to help them dig out of debt, start investing, and achieve their dreams. Jon’s writing appears on MSN, Media Decision, BBC, Wall Street Journal, and more. Jon also has a byline on AP News Wire.
Visit Our Staff page to learn more about me and why I am your trusted personal finance expert.
I love that you are focusing on character traits rather than behaviors or outcomes. It is truly the start of everything else.
Great thoughts here Jon! Sadly, most don’t live within their means or have confused (rationalized) themselves into thinking they are. If you don’t have it, you shouldn’t spend it. It should be as simple as that.
When I was younger I would “think” I was living within my means, but then I would get my credit card bill and realize I wasn’t. I had to learn how to live within my means all over again.
Except for a year and a half long jaunt with a car loan, I’ve been able to avoid debt except for the mortgage. Though I have to admit that I do consider the mortgage a bad debt.
Great job. Sometimes, some debt is unavoidable. The key is keeping it in check and then working to get rid of it.
Most people can afford to have a hobby or 2. I always tell people to do what they love, not their neighbors or friends.
@Elroy:
I love this advice… then again some hobbies are more expensive than others.
Great point Elroy!
Great post! Definitely live within your means. Just because someone else is buying tons of expensive things does not mean that you should be too, even if you think you “deserve” it more than they do.
Getting into the mentality of “I deserve it” can quickly become a slippery slope.
Excellent tips! Spending less than you earn is incredibly important. It is so hard for many people to figure out, but totally possible. One of the wealthiest people I’ve ever met still drives a 1980s Toyota Corolla because it still works. He doesn’t care about the millions in the bank, it just isn’t practical to get the new car for him. A great example of living within your means.
I know a few people that are wealthy but you wouldn’t know it by looking at them. They dress and act like they are just average when they have millions.
It’s really as simple as spending less than you earn. Unfortunately it doesn’t always happen for people, but if you make that your focus you should be able to avoid debt barring unforeseen circumstances.
That is why I like to save first with auto transfers to savings. This allows me to spend everything left in my checking account. If I were to do it the other way around, I would spend everything and save nothing.
My actions reflect what I believe. When I write down the goals that are most important to me to achieve and ask how I’ll feel if I don’t achieve them, I’m taking the first step of bring my future into my present. When I’m tempted to make a spontaneous purchase, I ask myself if this purchase is worth postponing my future goal. This takes away the feeling that budgeting is preventing me from enjoying life. This also gives me the freedom to search for and use budgeting tools that will best suit my style. The best part is I’m no longer forcing myself into doing something I know I should do. I’m doing what I want to do to get where I want to be.
Debt isn’t bad. It’s how we’re using debt that’s the problem. Using debt to purchase an appreciating asset is smart. Most of us use debt to purchase ‘stuff’ that is declining in value.
Banks use our checking and savings deposits as security to borrow anywhere from two to thirty times the value of our deposits. They either invest or lend what they borrow and we’re paid .1 percent at best. What a great revenue model!
Instead of leaving our dollars sitting in our checking account, we need to keep our dollars working 24/7.
I do this a lot myself. I ask myself if buying this will get me closer or further away from my goals. If it takes me further away, I avoid it.
Good thoughts here Jon! There are many ways to avoid debt, but I think so much of it comes down to living within your means and not comparing yourself to others. The problem that happens when you’re not doing the former and doing the latter is that you begin to become discontent and spend money you just shouldn’t be spending. When you don’t recognize that then you’re spending can get out of whack which will then lead to debt.
Well….we live within our means…now. We didn’t always and have fallen victim to unhappiness and comparison making purchases….. We started to “punish” ourselves for it, but that lead to more unhappiness and negative thinking. Staying positive and seeing a silver lining has helped us most frequently.
Great life advice here. I especially like the part about being happy. If you can find a way to make yourself happy without spending, you can avoid debt.
I think happiness definitely comes from within. Buying things will never make you happy long term. Short term yes, but never long term.
This is a great post Jon! You provided good ways on how to avoid debts. I will personally practice it especially the first one that you indicated.
Those are the ones that we should do not just for the financial area of our lives but also for the other areas of our lives.
Thank you so much and may you have a prosperous and happy 2014! 🙂
I especially like these 2: don’t buy love, and don’t compare to others. Very true, as using money as a tool to influence others, gain standing in a peer group, or feel good about ourselves vs. others are all a waste of precious resources. As in money, but also time and energy.
I learned these lessons the hard way but am thankful that I learned them early on in life and was able to overcome them.
These are some great tips to avoid debt. All too often there is something wrong with ourselves that causes us to spend a lot of extra money to correct. I think you hit the nail on the head with many of these tips. I especially like tip #5 – don’t compare yourself with others. This one almost got me into a ton of trouble a couple years back where I came super close to buying a sports car for nearly $80K!