11 Tips for Living Debt-Free

Published by Mikaela Parrick

The majority of Americans are living beyond their means and accumulating massive amounts of unnecessary debt.

In fact, U.S. household debt grew by $63 billion, or 0.5%, in the first quarter of 2018, driven largely by the increase in mortgage balances, a New York Federal Reserve quarterly report released on Thursday showed.

The amount of mortgage balances rose by $57 billion in the first three months of 2018 to $8.94 trillion.

Families, however, paid down their home equity loans, which fell by $8 billion, according to the report.

While living debt-free sounds nearly impossible in today’s world, it’s actually quite simple with some self-discipline and healthy spending habits.

Follow these 11 easy tips to start living debt-free today.

11. Follow the 50/30/20 rule

The 50/30/20 rule was first coined by Harvard bankruptcy expert Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan” as a way to spend and save money.

The idea is to spend 50% of your income on your needs, 30% on your wants and put the remaining 20% into your savings account or toward debt repayment.

Keep in mind that these percentages are the maximum you should spend.

Spending less than these percentages can leave even more money for other financial goals.

10. Pay it off in full

Avoid credit card debt by paying off your balance in full each month, instead of letting it carry over.

There is a common myth that carrying a balance on your credit card will improve your credit score, but it’s better to pay it off in full.

This will save you from paying finance and interest charges and keep your debt-to-income ratio low, which is an important factor in determining your credit score.

If you can’t pay it off in full every month, try to keep your balance as low as possible, preferably under 30% of your credit limit.

The lower the balance, the better your credit score will be.

9. Read the fine print

Know what you’re agreeing to before you sign anything.

A CreditCards.com special report evaluated more than 1,200 card agreements for readabilityand found that the average card agreement was so complex that it was unreadable to four out of five Americans.

For example, when applying for a credit card, look over the entire application and take note of the interest rate.

If the fine print refers to your interest rate as a variable rate, this means it can change without notice if the prime rate increases.

8. Don’t rely on credit cards

Credit cards are nice to have on hand in case of an emergency but try to refrain from relying on them and using them constantly.

If you don’t have to charge something to a credit card, don’t.

Instead, try using the money you already have instead of borrowing more.

As financial expert Dave Ramsey once said, “Don’t rely on credit cards to catch you when you fall.”

7. Look for deals

A great tool for online shopping is Honey, a free extension for Google Chrome.

Honey automatically gathers all known coupon codes from the internet and applies them to your order at check out to make sure you’re getting the best deal.

Similarly, using a price comparison tool when doing things like shopping for a car or booking a flight can help find you the lowest price.

6. Prioritize

Prioritize your bills by paying off secured debts first, like auto loans and mortgages.

Then pay off unsecured debts like student loans, child support and taxes.

Next, pay off unsecured debts that are likely to appear on your credit report, and finally, unsecured debts that are least likely to go into collections.

5. Set up automatic payments

The easiest way to make sure you don’t miss any payments is to set up automatic payments through your bank or through the creditor.

This way, all your payments are scheduled in advance and there’s no worry about missing a payment and damaging your credit score.

4. Budget

Creating a budget not only lets you know where your money is going, but it can also help you curb any unnecessary expenses.

There are dozens of easy-to-use apps available to help you manage your finances, like Mint or HelloWallet.

Mint is an app from PayPal that pulls all your accounts into one area for easier managing and gives insights into your spending habits.

In addition to making a budget, Mint also allows you to set bill payment reminders and see your finances in clear and easy-to-read charts and graphs.

Similarly, the HelloWallet app is designed to help you make smarter money decisions so you can reach your financial goals.

This app provides expert guidance and tools to help you make the most of your paycheck, from day-to-day spending to long-term planning.

[ Related: Top 5 Apps For Managing Your Finances ]

3. Live within your means

You can figure out if you’re living within your means by calculating your debt-to-income ratio.

To find this, add up all your monthly debt payments and divide that by your monthly gross income.

Anything over a 43% debt-to-income ratio is a red flag to potential lenders and shows that you are living beyond your means.

2. Research

Before making any big financial decisions, do your research on all loan options and possible negative consequences.

1. Use your resources

If you do find yourself in debt, there are many resources and programs that can help, like repayment plans or loan modification plans.

Another great thing to do is read personal finance books and blogs. You can learn a lot about yourself and money.

Intuit also has lots of free resources to help you manage your finances, like a tool that allows you to see how you compare your financial health with other Americans your age to determine where you stand.

NerdWallet also has a free debt calculator tool that will help you with budget-trimming and saving.

Living debt-free sounds nearly impossible in today’s economy, but with smart money management habits, it’s actually very easy to live without debt.

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