Remember how taxing it felt when you were surrounded by debt with what seemed to be no way out. How much relief did you feel when you were able to reduce it? Let’s explore three ways to to prevent debt once you’ve gotten rid of it.
Stabilize debt
The first step to freeing yourself from the debt cycle is to stabilize the debt. Stabilizing the debt means that you stop adding to it. That means you make a commitment to yourself to no longer incur new debt. This includes creating new financial habits and behaviors so that you can finally set yourself up to be debt free. Many people skip debt stabilization and jump right into reducing debt. You cannot get rid of the leak if you are still incurring new debt. You must plug the hole first.
Create a savings fund
By creating an automatic savings system after stabilizing your debt you can release debt once and for all. This money is meant to be used if you have an interruption with your income or an unexpected expense. To create an automatic savings system–you take a certain amount from your income that’s based on your budget (spending plan) and automate that amount into a savings account.
Eliminate debt
Get really good at this and you’ll never want to turn back. Have you ever heard of the debt snowball method. It is often psychologically easier to approach eliminating debt if you target the debt balance with the smallest amount. You’ll notice a great sense of accomplishment as you work your way through the debt snowball. If you have a balance of $500 on one account and $5,000 on another account, it can be very frustrating to target the balance with the $5,000 balance first (even if it has a higher interest rate). One suggestion is to list out all of your debt from the smallest to the largest balance. Make the largest possible payment on the smallest balance while paying the minimum amount towards the other balances. Once you’ve paid the smallest balance, use that amount to add to your minimum payment towards your next debt and continue the cycle until all debts are paid in full.
Stay the course.
