Debt doesn’t have to be your enemy, even though it has the ability to harm your finances. Debt can assist you in developing sound money management skills, building your credit, and achieving your goals provided you use it for a noble cause and if repaying it fits well within your budget.

However, there are some circumstances in which it is preferable to avoid debt. For instance, credit scores can suffer and interest rates can soar if you have credit card debt that you can only pay a minimal amount toward each month. Another illustration is a car loan with an excessively high monthly payment. As a result, you run the danger of missing payments and having trouble paying other crucial expenses.

These six suggestions can assist you in managing your debt responsibly, which include only taking on debt when it is necessary, manageable, and beneficial for you.


  1. Collect funds for emergencies.

Contrary to popular belief, emergency fund savings are crucial for staying out of debt. For a savings cushion in case you lose your job, experts advise accumulating three to six months’ worth of critical expenses—more if your work is seasonal, freelance, or unpredictable.

An emergency fund can also be used to pay for unanticipated expenses that would otherwise be charged to a credit card. If you can, use your emergency fund to pay for any necessary expenses, such as immediate car repairs or dental work (and replenish that money as soon as possible). This will prevent you from abruptly incurring credit card debt that could take years to pay off.

  1. Select a spending strategy

If you routinely make purchases that you can’t afford to pay off at the end of each month, overwhelming credit card debt may also sneak up on you. Making a strategy for every dollar you earn is the best approach to stop yourself from overspending.

You can make a budget as general or as specific as you like. It can entail adopting the 50/30/20 plan to divide your spending into needs, wants, and short- and long-term financial goals or the two-account strategy to allocate one account for fixed expenses and another for discretionary spending. Every dollar in a zero-based budget is given a specific function so you know exactly where your money is going. Whatever method you use, you’ll develop the habit of keeping track of your spending and ensuring that it stays within your means.

  1. Follow a regular saving schedule

Building a sizeable emergency fund and setting away funds for other objectives, such as retirement, are made simpler by automating your savings strategy. Additionally, if you keep that money separate from your bank account, you’ll be less inclined to spend it and possibly incur debt.

If you don’t already contribute directly from your paycheck to a workplace 401(k), set up automatic monthly transfers to your emergency fund, retirement account, and education savings account, such as a 529 plan. The ideal amount to save will depend on your unique situation, but as a general rule of thumb, follow the 50/30/20 budget and aim to allocate roughly 20% of your post-tax income to savings and debt payments.

  1. Pay off all of your credit card debt each month

Since you have the option to pay off the balance over time, credit cards may appear to be an encouragement to purchase expensive products that you cannot instantly afford. That can be helpful if, for example, you unexpectedly need to make a significant home repair and you don’t feel comfortable spending your emergency fund on its whole.

Generally speaking, one of the easiest strategies to prevent debt is to use your credit card like a debit card: only make purchases for which you are certain that you will have sufficient funds in your checking account by the time your payment is due. You won’t ever have to pay interest, and by maintaining a low credit utilization rate, you could raise your credit score. Additionally, you won’t rack up debt.

  1. Take Out Only What You Need

Choose the smallest loan that will still enable you to achieve your objectives when applying for additional forms of credit, such as a personal loan, school loan, vehicle loan, or mortgage. Your ongoing monthly payment might be decreased by making a sizeable down payment on a car or home. In particular, student loans should be used as a last option to pay for education after you have exhausted all federal, state, school, and institutional grants, private scholarships, and work-study monies. For access to federal grants and low-cost federal student loans, complete the Free Application for Federal Student Aid (FAFSA).

The Influence of Controlling Debt

It’s not necessary to pay for everything in cash to avoid debt. Utilizing financial tools that increase your credit score and provide you incentives is achievable while maintaining debt-free status. You’ll have made the first, and maybe most crucial, steps toward true debt independence if you stick to your spending plan and pay off your monthly credit card amounts in full.

You may check your credit report, which contains the most recent amount on your credit accounts, with a free Experian account to better understand your debt.