Best ways to prevent accumulating a debt
Debt isn’t a fun word, nor is it a fun situation to be in. Sometimes debt may seem unavoidable in the current economic climate, especially for young people trying to get an education, make ends meet, and start a life for themselves.
First, you should understand that not all forms of debt are considered “bad.” It’s true that taking on debt is usually goes hand in hand with high-interest rates, which means you’ll owe more money over time, and end up spending or owing far more than the original value of the items you’ve purchased. It’s also true that having too much debt can make it harder for you to apply for new loans and may interfere with your life in other ways.
No matter what your situation, we can guarantee if you follow the below tips to best prevent accumulating debt, you will be in a better position than you were before.
Live below your means
Your house may be one of your biggest financial decisions that you will make in your lifetime, but it isn’t your most common. You’ll also need to consider all the little purchasing decisions you make over the course of a month, or a year, and it’s important to try to live below your means—in other words, spend less money than you can afford to spend. Sometimes, that means eliminating your subscription services, spending less money on groceries, and keeping your entertainment to a minimum. This doesn’t mean you can’t buy that slightly expensive dress for an upcoming event or that new PlayStation game, it just means when you make those more expensive purchases then it’s important to cut back somewhere else. You should always try and have money left over every month; if you don’t, it means there are more expenses to cut, or you need to step up your income to preserve your current lifestyle.
Keep your credit cards paid off
Depending on what situation you’re currently in, this one may be tricky to do if you are already falling behind on credit card payments. We can ensure you that as soon as you get on top of your credit card repayments and prioritise this moving forward, you will be in a better position to stop accumulating debt in this area. Credit card debt is the most destructive and least useful type of debt you can have, so try to nip it in the bud before it starts affecting your life.
Stop using Afterpay
Getting the things you want now and paying for them later (without paying interest) seems tempting. It’s lay-by without the waiting, but you know what they say: If it sounds too good to be true, it probably is and that is a classic case for Afterpay. If you miss your scheduled repayments with Afterpay, you may find yourself with late fees up to 25% of the purchase price. If you use Afterpay without proper planning and budgeting, this could lead to debt and additional financial stress that you don’t need. Thankfully, the Afterpay app won’t let you make any new purchases until your overdue amount is paid back, which can help you avoid late fees piling up across multiple purchases however we recommend avoiding it at all costs especially when your budgeting.
Invest in good insurance
One of the leading causes of debt in Australia are medical expenses, just one major surgery or course of treatment could set you back for years. Therefore, it’s important to invest in good insurance so you can sleep at night knowing your covered when something doesn’t quite go your way. It’s almost impossible to plan for these unforeseen circumstances, but you can protect yourself against them by investing in a good insurance policy. It may cost you a few hundred dollars extra every month, but it could prevent you from going into debt unnecessarily and hurt you more in the long run.
Avoid impulse purchases & compare prices before making large purchases
This one is a tough one for all those shopaholics out there but it’s crucial to consider if you want to avoid debt. Next time you go shopping, ask yourself whether you really need that item and attempt to justify it to yourself. If you can’t think of more than five reasons why you should purchase said item, then try and put it back. Impulse buying is driven by emotion and there are multiple factors involved however we highly recommend avoiding this to prevent accumulating debt.
When it comes to purchasing larger, more expensive items whether that’s a new car, a brand new TV or purchasing a home, the one piece of advice we can give is to shop around. It doesn’t hurt to compare prices within the market so you can get the best deal for you, this goes hand in hand with our first point of living within your means so purchase items within your budget to avoid debt.
Keep a record of all credit card purchases
Like our blog on budgeting, it’s also important to keep a record of all credit card purchases, this will reduce any cheeky surprises you may get when your monthly bill arrives. By keeping a record of all credit card purchase, your chances of falling behind on payments and accumulating debt will reduce significantly. Start by purchasing a budgeting file or journal, this is a great step to get yourself feeling organised so chances are you will stay on top of recording your credit card purchases.
Avoid credit scams
Avoiding credit scams is an obvious but trick one but it’s important to avoid creating more debt by watching out for credit repair or credit counselling scams. Many companies appeal and target customers with poor credit histories — promising (for a fee) to clean up their credit reports so they can get a car loan, a home mortgage, insurance, or even a job.
Tips that can help consumers avoid credit scams include:
- Beware of promises that sound too good to be true
- Deal with a reputable agency.
- Verify that the organization provides counselling and education, as well as debt consolidation and payment services.
- Carefully read through any written agreement that a credit counselling organization offers
- Avoid paying up-front fees
- Beware of any high fees or required contributions, like high monthly service charges, that may add to the overall debt load and defeat efforts to pay off bills.
- Confirm payments with creditors
Don’t forget, we also have a great in-house financial team that can assist you with any questions you may have when it comes to debt. In addition, you can also seek free financial counselling through the National Debt Helpline, either by calling on 1800 007 007 or visiting their website.