7 Best Habits to Follow While Paying Off Debt to Help You Stay Debt-Free

Getting out of debt is not easy, but it’s absolutely doable so long as you commit to it. Whether you’ve overspent on your credit cards or been burdened by interest payments from an old loan balance, it takes a firm commitment and staunch self-control in order to restore your own financial health.

But once you get to the point where you have no debt, how do you continue to maintain a debt-free state? How are you supposed to plan for your future so that you never go back to having debt?

Here are a few actionable tips to help you stay debt-free. A few measures such as spending carefully, budgeting properly, and building emergency and retirement funds can all insulate you from financial devastation.

Save with automatic payments

Research has shown that more than half (57%) of American consumers lack the cash to cover an unexpected expense of $500.

It’s essential that you start building an emergency fund so that an unforeseen expense such as a medical bill or car repair would not require you to take out debt. Experts generally recommend that you have three to six months’ worth of expenses saved in case of an emergency. It’ll take a while to get to that goal, so be sure to make it a part of your monthly budget. Earmark a savings account for emergency funds and start automatically contributing funds to it from every paycheck you receive.

Your automatic payments don’t have to end there, however; you can also use them to save for your 401(k) or other retirement plans. Direct money towards where it will serve you best in the long-term.

Create a practical budget

Work creating a realistic budget that not only outlines your basic financial needs – housing, food, health care, insurance, and education – but also saves space for your debt payments.

You can take it further by looking over your budget line-by-line periodically and, if needed, eliminating non-essential expenses. You can live frugally with measures such as dining out only once a month, negotiating a lower premium with your insurance carrier, getting a roommate, or avoiding shopping for new clothes and electronics. Check your bank statements with a service like Trim or Truebill to optimize your spending and cancel unwanted subscriptions. Redirect the money you would’ve spent on these things towards your debts instead.

Don’t put it on plastic without cash on hand

Here’s a useful rule to follow: Whenever you want to buy something, make sure you have on hand all of the cash you could theoretically use to make the purchase before you use your credit card to actually make the purchase.

This strategy will ensure that you do not buy anything on credit that you can’t pay off in full later. You’ll be able to enjoy the perks of credit cards, like cash back on purchases, without sinking into debt.

Another good rule of thumb: when you’re tempted to make a large purchase, give yourself 24 to 48 hours to think about that purchase. Have you ever caught yourself splurging on something that you didn’t really need?

Monitor your spending with a self-imposed credit limit

The amount of credit you use in comparison to the amount of credit available, known as the credit utilization ratio, is key to calculating your credit score. Keep your credit use low so as to improve your credit score.

Verify your credit report

Check your credit report regularly to make sure that there are no inaccuracies – it’s a critical part in reducing your debt. There may be incorrect delinquencies or balances that take a toll on your credit score and make it harder for you to acquire credit.

Start earning more

It might seem eye-rollingly obvious, but it’s a good idea to take on another job or ask for a raise if you lack money left over after you’ve cut your expenses. Babysitting, freelancing, or selling items online could all supplement your primary source of income. Make sure to put all of that extra money towards your debt and savings.

Don’t close accounts when they’re paid off

It’s simple: credit scoring systems like to see that you have credit available, so it’s important that you keep accounts open.

Debt is hard to get out of. Staying out of debt is just as hard, if not harder. Build habits that keep you in financial health so that you can stay out of debt for years to come.