There’s a big difference between becoming debt-free and staying debt free — just ask someone who has paid off a loan, only to turn around and get another one.
For many people, debt can be an addiction — they’ve been using it as long as they can remember, and they can’t imagine their lives without a car payment, student loan, credit card or some kind of other consumer debt. Like most addicts, these people may make an effort to get clean every now and then. But without serious support and life change, the habits always bite back. Unfortunately, some people who work hard to become debt-free end up going back to their old ways because they don’t have the discipline to stay clean.
This doesn’t have to be you, though. Anyone who has successfully overcome an addiction will tell you that they’re never cured, but always in recovery. And they can never let down their guard, lest their old demons return. The same is true of debt: If you’re addicted to the stuff, it’s going to take a lifetime of discipline and recovery to get free and stay free.
If you’ve won the hard struggle to become debt-free, congratulations. Here are five tips that will help you stay out of debt in the long-run.
1) Budget, budget, budget.
It should come as no surprise that one of the tools that helped you overcome debt will also help you stay out of it. Good budgeting is essential for any kind of financial success. A budget is a plan that tells you exactly what you’re going to do with your money every week, every month or every year. Without a budget in place, you’re sure to spend more money than you think you’re spending, and you’ll find yourself running short of cash and tempted to borrow money to make up the shortfall. Don’t let this happen to you: Create a real-world budget and stick with it, for the rest of your life.
2) Save for emergencies.
Many people get in to debt because of some unforeseen emergency that they didn’t have enough cash to pay for. The trouble is that emergencies shouldn’t be unforeseen: Though we can never predict exactly what kind of emergency will happen or when, we can count on the fact that things will go wrong in life, and that those events will cost us money. So plan for those things now and begin saving for emergencies. You may not have done much emergency savings while you were getting out of debt; now that you’re debt free, saving for emergencies is essential to staying financially independent. This article gives you some good guidelines about how much savings you need.
3) Plan strategically.
Budgeting helps you manage your everyday expenses, and emergency savings prepares you for financial catastrophes. But what about those big expenses that are coming down the pike, such as weddings, homes or car purchases, new babies or college? People borrow money for all of those things, and it’s often a mistake. In order to stay debt free, you need to think strategically about the things that will be happening one year, five years or ten years from now, and put together a plan that will leave you with plenty of cash to pay for those expenses when the time comes. Saving bit by bit for years will help you stay out of debt when the big day finally arrives.
4) Carry good insurance.
Insurance can be a boring or even annoying monthly expense… until you need it. Chances are that sooner or later you’ll have a medical, vehicular or home event that costs a lot of money. Having good insurance coverage removes the risk of paying those expenses from your life. Although it can be very budget-friendly to carry little or no insurance, it’s not good for your finances in the long run. If you don’t have the insurance to pay for big medical or auto losses, one catastrophe can wipe out all of your savings and still leave you in debt. Don’t roll the dice on this one — carry good insurance to protect yourself against the unexpected.
5) Get some accountability.
Addicts who have success in recovery often attribute their accomplishments to the accountability and support that they get from groups of their peers. The same thing is true for people who have struggled with debt: The best way to win is to surround yourself with other winners, Talk about your finances with people you trust and respect, and ask them to hold you accountable to your standards of living debt-free. Take some time to help other people on their own debt journey. Money conversations can be awkward, but awkwardness is not reason enough to avoid accountability and support. Winning in the long term is more valuable than the sense of social propriety that comes from keeping your financial life to yourself.
If you have won the battle of getting out of debt, don’t lose the war by falling back into your old habits. Follow these principles and make your life a testimony to the power of recovery.
Photo by Portland Prevention. Used under Creative Commons License.