Financial Planning

One key part of getting out of debt is paying off your existing bills. But, many people forget another crucial component that can keep you in debt — taking on more debt.

As long as you keep making new charges on your credit cards or taking on new loans, your debt load will never go down. If you want to become completely debt  free, you have to stop adding more debt. Here are some things you can do that will help you stop adding more debt.

1. Live below your means.

Living above your means happens when you spend more money than your income allows. Though it sounds physically impossible, it can be done using credit cards and loans. That type of lifestyle can be hard to break and takes some serious adjustments.

To bring your spending under control, you have to take a hard look at where you’re spending money and cut back tremendously.

2. Be comfortable with the lifestyle your income can afford.

The Hiltons have replaced the Joneses when it comes to coveted lifestyles. Many people live outside their means because they aren’t comfortable saving up for the things they want, or can’t manage to simply live without them. There will never be a shortage of wealthier people to imitate.

To stop adding new debt, you must be be happy with the things your income can comfortably afford and stop wanting to be like the people you see on tv.

3. Don’t let other people use your credit.

Not only do you have to stop taking on new debt, you have to stop letting other people get debt in your name. If you co-sign a loan, you’re responsible for the debt if the other person doesn’t pay. New lenders will treat the debt as if it were your own, considering it in your debt-to-income ratio to approve your own applications.

If you can’t afford to pay the debt yourself, then you can’t afford to co-sign it.

4. Get a supplemental income to make ends meet.

When you have trouble affording your regular monthly expenses, the answer isn’t to use a credit card to buy the things you need. Instead, you should focus on increasing your income so that it’s enough to pay your bills.

If you can’t possibly make anymore money, then try to decrease your monthly expenses so they fit within the money you currently make.

5. Get help with your medical bills.

Medical debt is one of the leading causes of bankruptcy, even among people with health insurance. Rather than let your medical debt pile up, be proactive about your bills.

When you receive a medical bill that you can’t afford to pay, contact the billing department immediately to discuss payment options. There may be some hardship programs that can forgive all or some of your medical bills.

Use www.benefitscheckup.org to find programs in your area that can help you pay your medical debt.

6. Get smart about how much debt really costs.

A little bit of shock therapy might be the thing you need to stop your debt habits in their tracks. Debt is an expensive habit to have and you’ll be better off financially without it.

Debt costs money. For example, a $5,000 loan at 6% for 5 years, would cost about $661. The more you borrow and the higher your interest rate, the more it costs to borrow.

When you’re tempted to take on more debt, think about how much it will cost. That can help deter you from new debt.

7. Cut up your credit cards.

If you don’t have the discipline to stop using your credit cards, the next best thing is to destroy them. You can cut them up, shred them, or burn them with a blow torch. The key is to make them unusable. That way you won’t make any new charges no matter how tempted you may be.

Even if you cut up your credit cards, you can still make internet purchases by typing the credit card number. You may have to cancel your credit cards all together if that’s what it takes to keep you from accumulating more debt.

8. Put a credit freeze on your credit reports.

Desperate times call for desperate measures. If you want to stop adding new debt, make it hard to get any debt. Putting a credit freeze on your credit report costs about $10 per credit bureau unless you’ve been a victim of identity theft in which case it’s free.

In exchange, there’s a sort of lock on your credit reports that keeps lenders from checking your credit. Without your credit report, lenders will deny your application, leaving you without a way to access more debt. You can take off the credit freeze, but it costs a fee each time and must be done a few days in advance.

Will it be worth the trouble just to get another credit card? This method isn’t 100% foolproof since there are some lenders, like your family, that don’t do credit checks. In those cases, you just have to be able to say no.

9. Seek help from Debtor’s Anonymous.

You may have a problem with “compulsive debting” if you habitually borrow things and don’t return them, you shop compulsively, you live paycheck to paycheck, or you get a feeling of acceptance whenever you use a credit card.

Fashioned after Alcoholics Anonymous, Debtor’s Anonymous has a 12-step program to help compulsive debtors create healthier debt habits. It starts with admitting that you have a problem with debt.

To find out more information about compulsive debting and find a Debtors Anonymous group near you, visit www.debtorsanonymous.org.

Now What?

To stop taking on new debt, you have to figure out why you keep accumulating it in the first place. That way you can fix the problems that you coverup by with debt. It’s the best way to stop adding more debt — otherwise, you’ll never conquer your problem.

It won’t be easy. It’ll require a change in lifestyle — but you can do it.

After you stop yourself from going into more and more debt, the next step is to lower your interest rates. Stay tuned — an article is coming that’ll explain exactly how to achieve this.