How to Avoid Debt

For some reason, tons of people find themselves in debt for whatever reason.  Once incurred, this debt can prevent people from building wealth and reaching bigger life goals they want for themselves.

In some situations, debt is simply unavoidable.  Many people have no choice but to incur some debt to get by.  However, I think many if not most people get into debt when they really didn’t have to do so in the first place.  At least, not to the extent that they do.

Here are 5 tips on how people can avoid going into debt in the first place:

1) Be very careful when selecting a college and taking on student loans

Now, for many people student loans are a necessary part of going to college.  I’ll maintain that an undergraduate degree is simply a requirement for many things these days and is probably what a high school degree was a generation ago.  So given that a person really needs one (and should consider graduate school as well), it’s important to go to a school that will provide you with the education and marketability you need to make money and build a career.

Oh, and it will important to pay off student loan debt too.  Really, to a large degree this is determined by both the ability of the person to build that career through employment, as well as the cost of the education itself.  Finding that balance between cost and payoff is important in assessing the value of the education.

Hopefully, parents are financially literate themselves and can help.   Otherwise, it’s up to a young person to make a wise decision on the choice of school.  This plays a role in avoiding long-term debt and setting the foundation for a sound financial life.

2) Don’t worry about keeping up with the spending patterns of others

It’s a well worn saying, referring to worrying about what others have and do as “keeping up with the Joneses“.  Well, there is no need to do so.  Just because somebody else has a better home, better car, better clothes, and better vacations doesn’t make that person more successful or happier.  That same person January not be saving much money and might actually be financing much of this life.  Yes, with debt.

On the other hand, the person living a much more modest lifestyle might be avoiding debt and saving more money.  Also, it’s a better way to get to financial freedom.  It’s not like living a more modest life is a tradeoff, giving up a better life.  Rather, it’s living a life that one has earned versus a life one hasn’t earned.

3) Know how you’re spending your money

To really understand your spending habits, it helps to track expenses.  There are plenty of money management systems out there, with a slew of websites and apps out there to help you.  Or, you could simply use a good old fashioned spreadsheet.  Either way, it’s a good idea to understand your spending habits so you can see where your money is actually going.

4) Make sure your income exceeds your expenses

This isn’t always possible for everybody in every possible situation.  There are times in life where this can be tough to do.  However, we need to get past those times as quickly as possible.   Figuring out the difference between what we truly need and what we want is vital to making this happen.  Not to mention, it’s critical to wealth building!

5) Imagine not being able to retire

Yes, this is the case with many people.  Unfortunately, very few people can work very late into life no matter what they think.  The longer someone is in debt, the later in life that a nest egg can actually be built.  It takes time and the power of compounding to really build net worth.

Wouldn’t it be much easier to have chance to have an easier time later in life.  Being older and not able to retire doesn’t seem like a fun way to spend those years, when we have less energy to being with!

Readers, what do you think about these ways to avoid debt? Do you see these as being helpful guidelines and motivation to bypass debt and focus on solvency and building wealth instead?  I know there are other tips people might have – please feel free to share 

14 thoughts on “How to Avoid Debt

  1. Jon @ MoneySmartGuides

    Great tips. I would say picking the right college that you can afford is big. The less debt you come out of college with, the better. And once you are out, you need to ignore what others have. They January appear to have it all, but in reality, they most likely don’t. They are most likely just barely getting by with all of the debt they have.

    1. Post author

      Jon – Yes, many people might seem to have it all but are just getting by. Whether they don’t understand it or just seem to be avoiding reality is sometimes hard to say.

    1. Post author

      It sure is! The enlightening part often seems to be how we are spending more than we realize in certain categories :)

  2. Thomas | Your Daily Finance

    Student loans are big but I think you can start with the spending and tracking as well as not trying to do what every one else is doing. More money less debt equals a little better strategy and plan. Having a budget and sticking to it has helped us a lot.

    1. Post author

      Thomas – I totally believe that having a budget helps a lot. It’s a good starting point for many people!

  3. Sam Gill @ Digital Spikes

    Before you start your career it is good to have less debt in form of student loan. Also keeping track of your expenses is important, one needs to have a clear tally of the income versus spending. A monthly budget definitely helps to have a control

  4. Eric

    I think student loans are fine, as long as the degree will let you pay them off. Getting a private school graduate degree in social work will leave you with a mountain of debt and a low paying job. Now an MBA from a state school? Should pay off in no time.

  5. Bryce

    Good post. I hate debt and do my utmost to avoid it. We did have a mortgage, but that got paid off in 12 years. One of the debt pitfalls that I see all the time is your #2, where people buy stuff because others are buying it. I also use #5 every now and again to remind my wife that we have a larger goal in mind as we stash money away.

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