“They may see a slight increase in income and think, ‘Oh, I just won the lottery and now I’m going to spend like crazy,'” Schwartz said. “And it’s difficult to change those behaviors once they’ve become ingrained over a long period of time.”
To prevent this, keep an in depth eye in your spending – you possibly can download apps for this purpose – and delay major events like moving out or buying a automotive when possible, Schwartz advises. Set up an emergency fund in case you lose your income or suffer a financial setback to avoid stepping into serious debt.
“If you have the opportunity when you’re young to not spend as much on rent or groceries and limit your social contacts, that’s a good starting point for building a reserve fund,” Schwartz said.
Live inside your monthly money flow — using your debit card or money — and develop a short-term savings plan to make big progress toward paying off debt, Terrio advises.
When must you concentrate on paying off debt?
The summer months are difficult for austerity because people prefer to socialize, he stressed, but January through March is a great time to stick with a strict budget. Up to 40% of non-rent income ought to be used to repay debt, Terrio said, noting that short-term austerity is tolerable since it passes quickly.
Ultimately, the goal is to achieve the tipping point where at the very least half of your debt payment goes toward repayment — and the portion going toward interest begins to say no. Never take out an installment loan, he added.
“All these $10,000 loans with 36 to 48 percent interest — if you take one of those, you’re done,” Terrio said. “You’ll never get out.”
If you are debt-free, stay debt-free. Keep your credit limit low and switch down offers to extend it, Terrio advises. When you transfer debt to a line of credit, stop using your bank card.
