Falling into debt is a very slippery slope that can lead directly to bankruptcy if not addressed. Many find it too difficult to climb out and stay out of debt. Many of these individuals could have avoided the situation entirely had they been more proactive in addressing their financial management techniques. There are several simple ways to avoid getting in debt and most do not require much time or effort.
It may seem wise to transfer credit card balances from high-interest rate cards to those with lower special or introductory rates. However, the cost savings can be offset by making additional charges on the card to which the balance is transferred. Do not place any charges on the card and pay off the balance before the special rate period expires. When making a purchase, pay in cash or use a debit card whenever possible. If a credit card must be used, avoid using retail store credit cards that carry high interest rates.
Run a free credit report at least once per year, review it for accuracy, and dispute anything that is incorrect. If a job layoff is imminent, contact creditors to explain the issue before the job is lost. They may lower a credit card’s interest rate or extend the deadline for payment. This will help prevent balances from becoming a problem that will later appear on the credit report.
Make a budget for regular monthly expenses as well as planned future spending and stick to it. When paying bills, pay for living expenses first, then pay for secured loans, co-signed debts, unsecured loans, and credit cards, in that order. Allocate three to six months’ expenses to an emergency fund.
There are two other recommendations in order to avoid a disastrous debt situation and both pertain to credit cards. Do not make late payments on these cards, because in addition to late fees, a payment that is 30 days past due can show up on the card holder’s credit report and increase the card’s interest rate. Try to pay as much of the balance as possible, in order to avoid paying unnecessary interest on credit card balances as is common when only the minimum balance is paid each month.