How To Stay Out of Debt (For Good This Time!) (2024)

The topic of how to stay out of debt was inspired by one of the responses I received on a survey I sent to my newsletter subscribers. One reader is out of debt (fist bumps) and wants to stay out of debt. Like, who could blame her?

I figured this would be a great topic to explore on LAAB because getting out of debt is a goal many of us share, but that really isn’t the end goal. The end goal should be staying out of debt.

So, without further delay, let’s discuss a few things I believe are critical to helping you stay out of debt.

How to Stay Out of Debt in 6 Easy Steps:

Build a healthy emergency fund.

This should be your top priority. I want you to think of some things that caused you to go into debt in the first place. I’m not talking about frivolous spending over the weekend. I’m talking about those surprises. Broken bones, unexpected illness, natural disasters...you know, stuff like that.

I’m aware that those extra shopping sprees hastened your journey to debt and you do need to plan for those little shopping sprees; however, it’s also critical to your debt free journey to plan for life’s mishaps.

Work on building a fund that has enough that would last you 3 to 6 months. We’re not talking about 3 to 6 months worth of income, focus on 3 to 6 months worth of your bare-bones expenses.

For more information on determining your bare-bones expenses so you can stay out of debt, read Emergency Fund: Everything You Need to Know.You also might want to check out12 Ways to Build Your Emergency Savings Fast.

Continue monitoring your expenses.

Do not go three weeks without checking your bank account. Do not spend money on things you cannot afford. And absolutely do not give up on monitoring your expenses.

Why?

It’s easy for your spending to spin out of control when all you do is hand over cash to other people or swipe your card for things you deem necessary. Before you know it, you’ll have no money whatsoever and sit around telling other folks you’re broke.

The way to handle this sad situation is by spending mindfully and giving your money an assignment. If you know you’re supposed to be spending $30.00 on household supplies, monitor what you’re spending so you will know once you’ve reached your maximum spending limit. If you don’t, you will spend more than you intended and you might just end up in debt because you overlooked a basic principle of Personal Finance 101 — monitoring expenses.

Stay Insured.

Some believe being insured is a luxury expense they can’t afford. In reality, being uninsured is an expense you can’t afford! Healthcare isn’t getting any cheaper and uninsured car accidents can leave you in the poor house too.

Beyond health care and automobile insurance, it’s important to think about a few other things too, like your ability to work. Heck, your life, too!

For instance, if you get hurt in a car accident, you could be out of work for a considerable amount of time. Wouldn’t it be jacked up if you didn’t have car insurance or disability insurance?

I mean seriously, what would you do? Your bills don’t have any worries and they are coming every month regardless of your ability to pay.

On top of those bills, how are you going to handle being an uninsured motorist if you are the driver who’s found at fault? Can you spell bankruptcy and lawsuit?

In all seriousness, a guaranteed way to stay out of debt is by making sure you have insurance on your home, your ability to work, your health, and your car. Bonus points if you think about your loved ones and purchase life insurance too.

Don’t deprive yourself.

You are debt free! You can afford to have a little fun as long as it’s within the reach of your budget. If you have to finance a trip, concert, new outfit, or television — can you really afford it?

There is nothing wrong with you shopping the weekend away or having a spa day with your friends as long as your budget can accommodate it.

If you have to pull out that credit card and wonder how you’re going to cover the bill when it comes in the mail, it’s best to lock your credit card away.

I recommend having a savings account exclusively for special treats. Whether you want to go to Vegas with your friends or go crazy at the shoe store, this fund is only there for your enjoyment.

You can fund this account by creating a budget category for it when you map out your expenses. I’ve even known people to work side jobs and earmark monies earned specifically for their special treats instead of budgeting their full-time income.

There isn’t a right or wrong way to do it. Just make sure you don’t deprive yourself of a little fun.Check out Desirae of Half Banked’s article on In Defense of the Fun Budget. She drops knowledge I can relate to.

Use credit responsibly.

Getting out of debt is one heck of a milestone, but there are still some other forms of debt you might want to utilize in the future. For instance, you might want to become a homeowner one day and you might not have enough sitting around in your bank account to fund the entire purchase. If you plan to take out a mortgage, you’re going to need credit.

If you’ve been in the streets racking up credit card bills again, you’re just making it harder on yourself when it’s time to get that loan. No one says you have to cut the credit cards up and never mess with them again (okay, well a few folks would recommend this, but I’m not anti-credit).

You just have to responsibly use them. When you are ready to make purchases and pay them off in full each month, you could enjoy certain perks like travel points if your credit card company offers them.

Always maintain additional streams of income.

If your 9 to 5 shut down tomorrow, your bills would not give a crap. They would still come on time and your collectors would expect on-time payment.

Maintaining additional streams of income can lessen the burden that comes with job loss. It can also assist you in your efforts of obtaining financial freedom earlier than is naturally expected.

You could use additional streams of income to fund long-term savings goals, such as retirement. This form of income could also be used to build passive income revenue streams or to beef up your emergency fund.

No matter what you decide to use the money for, a side hustle is the best way to protect yourself from the uncertainties life can present and it can definitely help you stay out of debt.

In conclusion

You’ve made great strides to overcome your debt. You worked hard, persevered, and conquered what many perceive to be inevitable. Even though one chapter has closed, a new journey is beginning and that’s a journey WITHOUT debt.

How you handle your money now is of equal importance because if you’re not careful, you can end up right where you initially started.

Continue budgeting, save for the unexpected, protect your finances and livelihood with insurance, and don’t neglect the fact that you still need to have a life. Sprinkle all of that with a little side hustle income and I have no doubt that you’ll stay out of debt forever.