3 Tips on Avoiding Indebtedness and Becoming More Financially Independent
Many people are heavily indebted in recent times. People are obtaining credit to buy consumer goods that have no returns or to make payments on a fixed income; they are left worse off as they grapple with meeting their expenses and paying back their loans.
These people can soon find themselves with no control over their lives, perhaps feeling like they have to stay in a career or job that they may not like in order to service their debt. Failing to weigh the costs and the long-term effects of forcing a payment into their budgets is the major cause of household and personal indebtedness. The incorrect use of credit cards as a financing tool, rather than employing them to ease transactions, is one of the biggest financial blunders of modern times, since cards have high interest rates at 20% and above.
Below are some techniques that can help you to avoid indebtedness and enjoy more financial independence:
Have only one card as a transaction tool
It is prudent to have only one credit card for all your needs, which will help monitor your expenses. Additionally, one card will ensure your debt remains low, since you will hit the credit limit sooner and must first offset the balance to use the card again. You will be on top of your spending habits and bargain for friendlier rates. At times, you may think that you cannot build credit with one card, but you can, provided you pay consistently on time. You may also engage experts who are easily reachable at www.boostcredit101.com to help you improve your credit score to enjoy certain benefits, like easy access to credit facilities, better rates for credit, and so on.
Prepare a cash flow budget after receiving your salary
After receiving your monthly salary or any other income, it is essential to factor in your fixed payments, such as rent, loan or mortgage payments, and others, so that you are sure how much you have left for your variable expenses, and have a better understanding of your daily financial position. Also, you will avoid having to resort to using credit cards thoughtlessly. If your income is biweekly, and your mortgage repayment is monthly, you may need to synchronize them in order to deduct your crucial obligations each time you get a paycheck. Reorganizing your monthly mortgage payment to half payment fortnightly is also a good idea. The arrangement has two merits: You avoid the trouble of saving towards your big monthly payment, and you will make an extra payment on your mortgage by the end of the year without any added pressure.
With a budget and full awareness of the amount available for your variable expenses up to the next time you receive income, you will be disciplined and operate within your means. The idea is not to do away with the credit card entirely, but to settle the full amount each month and not to carry any balances to the next month. A budget is a simple tool—you can even make it on a spreadsheet—that has a tremendous positive impact.
Make savings before buying, or optimize on credit promotions
If you have to buy something using a credit card because you do not have money to pay for it upfront, this an indicator that you cannot afford it, and you have just started accruing debt. You should consider saving prior to the purchase, as opposed to using a credit card and paying exorbitant interest rates. Alternatively, you can take advantage of credit promotions at 0%, and during the duration, you can save and pay the whole amount by the end of the promotion; this way, you will be able to enjoy your item as you save for it. The 0% credit promotions are geared towards saving before purchasing, rather than using credit. You can also consider using your card and transferring the outstanding amount to another card with promotional rates. You will have significantly reduced the interest amount, though not totally eliminating it. The two strategies can work, but you need to be careful to follow the terms and conditions and not abuse them, lest you find yourself in more trouble with new debt.
The above three ways can save you from getting deeper and deeper into debt. They can also enable you to be in control of your life, since you will not be under pressure to keep generating income to pay off your debt.