1 in 3 Americans Are in Debt; 5 Easy Ways to Stay Debt Free
A new Urban Institute study found that one in three Americans has debt that is now "in collections." Collections is when the individual's debt has been prolonged or not paid off for a long enough period of time that the creditor has sought outside help to regain the funds. The researchers looked at debt as low as $25, all the way up to a stifling $125,000.
In order to weed away some of the debt that would tip the scales of the study, only non-mortgage was debt was analyzed. This included medical bills, credit cards, car loans and parking tickets. The average amount of debt between the 77 million Americans is $5,2000.
We've assembled a list of five simple strategies that can save you from debt. While some of these tips may seem like common sense, the truth is that with one in three Americans is in debt, we may need a refresher course.
Two-Month Budget
Debt can occur from a number of external forces, some of which are out of your control. In order to keep these occurrences as minimally damaging as possible, individuals should watch and analyze their spending for two-months in order to see their habits.
Once the micro-study has been completed, an individual can see in black and white the extra money they have, the bills that need to be paid and their entertainment spending. Seeing where your money goes is the best way to improve savings and lessen bulk purchases.
Concrete Budget
Once you have formed your budget off of the two-month observation, keep it there. Even if you get a raise at work or a big promotion, keep your budget fixed in the same place. Its human nature to get a raise and go buy something shiny, but the key to staying insolated is to live at a constant pace with small exceptions every now and then.
One Family One Credit Card
Credit cards can be useful in certain circumstances, but they should only be used if you have the cash to back it up. Individuals can dig themselves into deep holes when they buy an item today, knowing that they'll have the money in a few weeks. This system only erodes the individual's finances, and then forces them down a slippery slop. If you don't have the currency to back up your purchase, then don't make it.
Save Don't Spend
We all need a new TV or computer at some point, but not right this instance. Instead of blowing a whole paycheck, why not save up for the item over a period of time, so that the financial hit is not as big. Holes are dug faster when large hits to your budget occur. The new toy can wait a couple of weeks or months while increments of cash are methodically tucked away.
Buying Perspective
Before making a purchase of any amount, factor in how many hours of work you spent to buy that item. If you're making minimum wage, then a $5 coffee at Starbuck just erased thirty-minutes of work. Going out to eat on a lunch break? How many hours did it cost you? This new perspective will have an immense impact on your spending.