Living without debt

At a time of mounting personal debt, is it possible for an individual to live without borrowing? Absolutely.

Many people do. For some, living debt-free is a lifestyle choice. Debt comes with an obligation to repay the creditor. Not everyone wants to be tied down by such a commitment. They prefer to do without the convenience of credit cards and personal loans, rather than take on long or short-term debt.

For others, it is not a choice. People with very low credit scores do not qualify for traditional forms of credit. They cannot get a store card, much less a credit card. Reputable lenders consider them too much of a risk. The only people who will lend to them are loan sharks and payday lenders, neither of which is ideal for someone in financial difficulty.

How to live debt-free

If you do decide to live without borrowing money, there are a number of strategies that can help you with your day-to-day finances.

1. Budget – Living without debt means that you must stay within the limits of your budget. It’s important to get this right. Otherwise you may end up short at the end of the month, which will send you back to the lenders.

First, you will need to calculate your net monthly income. This is easy if you only have one job that pays a set salary. It’s more difficult for people who work irregular shifts or freelance. Do not forget to subtract taxes.

Second, you will need to make a list of all of your expenses, like rent, food, gas, utilities, etc. When creating a budget, many people forget to include the little things, like the coffee they have on the way to work, or change for the parking meter. At the end of the month, these things add up. Keep track of everything so you know exactly where your money goes.

2. Plan – Once you have your budget, you can use it to plan in advance for major purchases. Say you’re planning to buy a new car. Normally, you would take out a loan to buy the car and spend the next five years paying it off. You cannot do that if you’re going to live debt-free. Before you buy the car, you will have to save up the money. This is why you must plan in advance

The greater the expense, the more it is to plan in advance. Are you going to pay for your kids to go to college? Better start saving for those tuition fees. Want to buy a house? Without a mortgage, it can take decades to save up the entire amount.

3. Emergency fund – Even the best planning cannot predict emergency expenses. If your boiler breaks in January, you cannot spend the next three months saving up to buy a new one. Your family will freeze. It’s vital to have some money set aside for emergencies. Don’t be tempted to dip into the fund unless it’s a true emergency.

4. Sacrifice – Living without debt means having to make some sacrifices. The first thing that will have to go is instant gratification. Thanks to cheap credit, people are used to getting what they want, when they want it. It’s easy to hand over a credit card and worry about the bill later. If you’re going to live without borrowing, you will have to wait to make that purchase.

5. Focus – Everywhere you look, people are buying the latest gadgets, the trendiest clothes, the newest cars. Creditors are eager to lend you the money to buy these things. It will take a lot of will-power and self-control to resist the temptation to buy now and pay later. You have to stay focused on your goal of being debt-free.

What to do about existing debt

For some people, living debt-free seems like a pipe dream. They are so far in debt that they cannot see the light at the end of that tunnel. Before you despair, there are some things you can do to help you clear that debt.

One of the biggest obstacles is high-interest credit cards. It’s hard enough to make the payments without the debt growing at 30% a year.

If your credit score allows it, apply for a credit card with a low APR. Then transfer the balances from the high-interest cards onto the low-interest card. You can save hundreds, even thousands, of dollars in interest payments.

If you do not qualify for a favorable rate on a credit card, debt consolidation may be a good solution. You may be able to combine all of your smaller debts into a single, low-interest loan. This is a particularly good option if you own a house that you can use to obtain a secured debt consolidation loans. The money that you save on the interest will let you pay off your debts quicker.

Useful websites

No Credit Needed Blog

Living Life Without Credit

Live Without Credit Cards

Life Without Credit: Tough and Expensive

Online Bill-Payment from ING Direct

YNAB Personal Budget Software

Related posts:

  1. Living Within Your Financial Means
  2. Finding ways to rid your life of debt
  3. Realizing your problem with debt
  4. A Collection of Debt Reduction Wisdom
  5. Debt has become overwhelming!

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