It’s an undeniable fact that settling your debt just lifts all the heavy weight off your shoulders. However, debt settlement is just the tip of the iceberg because to attain complete financial freedom, you have to do a lot more than just get your debt reduced. Learning how to manage your expenses, save money and avoid debt, it’s all an art and in order to live a stress-free and debt-free life, you must master it. In simpler words, you have to adapt to better and more responsible financial habits if you want to secure your financial future.
You wouldn’t ever want to be one of those who keep on taking up loans even when they know they can’t afford them. Dealing with a single loan can be stressful enough and if you get stuck with multiple loans, multiple interests and multiple creditors, it can wreak havoc on your mental health. If you don’t fix your financial habits, you’ll end up in the toxic debt cycle and your life will become miserable.
Today, we are going to jot down some of the best financial habits one can adopt to promote stability, growth and security.
Starting with;
1-Create A Realistic Budget And Stick To It
Your budget is no less than a cornerstone that determines your financial health. It helps you identify where you stand with your finances, where your money goes and how you can control your spending. Creating a budget is no rocket science, first you just have to track your income and your expenses. You should start by categorizing your expenses and then allocate a certain amount to each category. For example, differentiate your needs from your wants and then allocate the amount accordingly. You can use different budgeting tools here like Mint or YNAB or simply make a spreadsheet for better understanding.
2-Create An Emergency Savings Fund
The best trick to avoid any debt in future is to have an emergency fund prepared. Again, all you need is to show some responsible behavior here and deposit a decided amount in your savings account every month. You can automate your payments for your emergency fund so that it’s easier for you to save money. Moreover, set aside your savings at the very start of the month when you receive your paycheck. If you can’t afford to save big, start low even if it’s just $500. Gradually increase the amount when it’s possible and make sure to at least save 3 to 6 months of essential expenses.
3-Cut Down Any Unnecessary Expenses
If you want to save up more, invest your money or pay off your other financial obligations then it’s important that you first cut off the fat from your budget. This means that you should avoid any unnecessary expenses at all costs. For example, if your goal is to save money then you shouldn’t use any subscriptions that you don’t really need. Also, it’s better if you start cooking at home instead of dining out a lot because that really damages your budget. Another effective tip is to always create a list of the things you need when you go to shop. With the list, it’ll be easier for you to control impulsive buying.
4-Avoid Any New Debt
Let’s be clear, with debt, you cannot expect to attain financial freedom. Both the things do not get along which is why it’s really important that you avoid taking up new loans at all costs. What’s worse is that if you take up a new debt after debt settlement, it won’t just damage your finances, in fact, it’ll give a serious blow to your credit too. It’s best if you don’t use credit cards unless you are sure that you can afford paying them off. Secondly, you should finance any big purchases when you are in the recovery process and you must live below your means in order to avoid borrowing money again.
5-Surround Yourself With Support
If you want to stay debt free, it’s important that you surround yourself with people who are financially responsible. Bad financial influence is the last thing you should have around if you don’t want to end up in something as overwhelming as debt. In a situation where you want to fix your financial life and secure your future, you should share your goals with your trusted friends and family who can support you in this journey. In case you need more guidance, you should seek professional help from a certified financial counselor. All these steps can help you reinforce healthy habits and keep you accountable at the same time.
6-Rebuild Your Credit Wisely
Debt settlement can take a dig at your credit score and that’s the first thing you should fix once the debt has been settled. A poor credit score means several financial limitations and rebuilding your credit can literally open doors to better financial opportunities. Some effective tips you can use here are; use a secured credit card and only use it to make small purchases. Pay your balance in full each month and make sure there aren’t any unpaid bills pending in your list. Lastly, you should monitor your credit report to ensure that all the information is correct. In case you find any inaccuracies that are weighing down on your credit score then make sure to dispute them with the credit bureau immediately.
What To Do If You End Up In Debt Again After Debt Settlement?
If unfortunately you ended up taking another loan after debt settlement then it’s important that you take immediate measures to fix the problem right at the spot. Here are some effective tips that can come in handy;
- Make Timely Repayments: Do not delay or miss any of your monthly repayments. Not only will it affect your credit score, in fact, your debt will start to pile up and so will your interest. To keep the monthly repayment minimum, you should pay on time before the deadline.
- Don’t Take Up Any More Loans: Deal with one loan at a time because it’s still easier to manage a single loan instead of multiple loans. Especially if you aim to become debt free then don’t take any new loans and just pay off the one you currently owe.
- Stop The Bleeding: You are already in debt and in such a situation you should immediately cut down all your unnecessary expenses. No ifs and buts here, whether it’s a subscription that you don’t really need or whether it’s dining out, cut it all down at least till you’ve paid off your debt in full.
- Explore Debt Relief Options: If you are stuck with debt again, it’s important that you start exploring debt relief options immediately before the debt goes into collections. Your creditor can even sue you for the unpaid debt so the sooner you act on it, the better it is. From debt settlement to debt consolidation and debt management, you should pick the option that suits your circumstances the best. Also, seek professional help especially if it’s a debt settlement. Companies like Mountains Debt Relief can really work wonders for you when the burden of the debt is weighing down on you.
Staying Debt-Free For The Long Term
If you want to avoid and stay out of debt for the long term, you must make consistent efforts, adopt smarter financial habits and commit to your budget and savings. It’s important that to achieve all such goals, you first identify and understand the cause behind the debt. Once you know it, sort it out and make an emergency fund so that you never have to deal with something as stressful as debt. Whether you are starting your financial journey or trying to recover from the past debt, all these effective strategies can be a game changer for you and can help you have a financially stable future.
FAQs
Q1. Will Falling Back Into Debt Damage My Credit Again?
Yes, falling back into debt will potentially damage your credit again especially if you max out credit or start missing payments. If you want to minimize the long term harm, it’s important that you act immediately and sort out your debt as soon as you can.
Q2. Can I Go Through Debt Settlement More Than Once?
Yes, you can go through a debt settlement more than once but it’s not recommended at all because it can damage your credit at a whole other level. It will also signal other lenders that you are a high risk borrower and they might hesitate in giving you another loan.
Q3. Should I Consider Bankruptcy If I Fall Back Into Debt?
Bankruptcy should only be used when it’s your last resort. Before you make any such decision, it’s important that you talk to a bankruptcy attorney first and explore other options.