5 Tips for Staying Debt-Free

There are a million ways a person falls into the clutches of “debt valley.” Irresponsible spending is usually the reason, but there are a lot of valid, unavoidable reasons as well. A sudden medical expense, unemployment (due to COVID-19), or unavoidable family expenses can happen to the most prudent borrower.

Staying debt-free is a better strategy than having to get out of there. Below are five tips to help you stay out of debt, and save for the future:

1. Be realistic about your financial situation

In 2016 a Forbes article stated that if you have $10 cash in your pocket and no debt, you are richer than 15% of Americans. Today that figure has risen to about 18%, and possibly higher due to the Coronavirus pandemic.

Whether you’re a normal citizen or a Fortune 500 company, the number one rule is to make more money than you spend. Live within your means, as my father would say. It’s nice to have nice things, but it’s a mistake to leave reality behind and give into the temptation of over-spending. Poor financing can severely limit your financial options in the future, and is a leading cause of stress in American families.

Being realistic about your financial situation means living a lifestyle that you can afford.

2. Create a weekly and monthly budget

Budgeting can be a painful thing. You have to decide what expenses you’re going to cut, but the upside is that it’ll get you out of stress of having so much debt. To help guard against financial ruin it’s recommended that you have a number system 1-10, with “10” being must-have expense, and a “1” being a bad expense.

At a bare minimum, you should take the time to calculate your income (after taxes) and compare it to your estimated expenses. You might be surprised to see where you can save money, either by cutting out completely or substituting it for a cheaper option.

You should also learn how to calculate your debt-to-income ratio (DTI).

3. Work on your credit score

It’s very easy just to swipe the plastic and defer payment to “next month”. Paying for things with a credit card is super convenient, but you’d be surprised how quickly credit card debt can compile against you. It’s a cycle that a lot of Americans fall into, and one of the biggest reasons why your credit score can take a tumble.

For some people, getting into a cash habit for smaller purchases is a good way to save money. And if you can’t use cash, make sure you pay off the balance on your card accounts every month. Credit cards come with ridiculously high interest rates, expensive late fees, and other bank penalties, especially on unpaid balances. And more than anything, deep credit card debt can severely limit your future finances. Whether it be applying for a home mortgage, an auto loan, or even a job opportunity, having less debt and a higher credit score will give you more options.

4. Pay your bills on time.

Consistently paying your bills on time (and in full) avoids compounding debt, but also directly affects your credit score. Whether you have student loans, trying to afford senior living, have a home mortgage, owe monthly rent, need to pay a car loan, or managing your utility bills, make sure to pay on-time. Bill should become a regular thing, just like taking out the brushing your teeth or taking out the garbage.

FYI: Take advantage of online bill paying. It’s super convenient and you can set up automatic payments each month to pay your minimum balance in case you forget. It’s a good way to make sure you don’t ding your credit score with a missed payment.

5. Build an emergency fund.

You know how they say, “easier said than done?” Well this is a good example of it. Budgeting looks nice on paper, but having the discipline to stay on track is an altogether different skill-set. Start by putting a portion of your income into an interest-bearing account to build a financial safety net (aka: emergency fund or rainy day fund). Try to commit a small percentage of your income so it builds over time.

The recent Coronavirus pandemic illuminated people’s lack of an emergency. It’s sad to see when a person is furloughed or laid off, especially due to no fault of their own. Having a $5,000 or  $10,000 emergency fund is worth having.


Staying debt-free isn’t something you can put on auto-drive. It won’t be easy. You have to make a constant, and consistent effort in managing your income and expenses.

If you do find yourself getting close to the edge of “debt valley”, be proactive. Talk to your creditors and tell them that you’re having trouble meeting your financial obligations and that you might need to renegotiate some of the terms. Not all of them will accommodate, but you lose nothing by making the attempt.

The article above was a guest post from our friends at mortgagewiki.org.

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