Getting over your head in debt was a mistake. Now that you fixed that problem, what’s next?
First, look back and realize it’s OK to make a mistake as long as you learn from it and resolve never to make that mistake again.
Now look forward
Make a commitment to yourself and your family – save up the money before you buy any consumer item. Never use borrowed money again to buy anything including a car. Houses are an exception, provided you saved at least 20 percent for the down payment.
It means living on less, saving more and having an emergency fund. (The importance of an emergency fund cannot be overemphasized.)
How can you buy things without going into debt?
Here’s the short answer:
Buy things only with money you already have. That means no more credit cards (borrowed money), no more checks (which can be written for more than is in your account) and no more borrowing money from your family.
You must follow a budget so you know the upper limit in each spending category.
Cash is the conventional, soon-to-be-old-fashioned way to buy things. If you don’t have enough cash, you cannot buy it. Period.
An easy and effective way to not spend more than you have allotted to each expense category is to put the designated amount of cash in a paper or virtual envelope that is labeled with the category name (rent, groceries, eating out, car payment, gas, etc.)
This is more commonly known as the “envelope system.”
When the cash is gone, you must wait for it to be refilled the next month. In theory, a debit card is supposed to limit spending to the amount of money in the account. To make sure a debit card purchase is rejected if there is insufficient money, you must “opt out” of the issuer’s overdraft policy.
Handling debt in the future
We are moving toward a cashless society and a society in which having your money in a brick and mortar bank is not necessary. Smartphones and computers and apps are changing the way we do our banking.
Here are some things to check out:
Ally Bank is a five-year old online bank with excellent customer support. There is no minimum to open an account, and there are generally no fees.
You can set up direct deposit, get a debit card and checks with the money market account, pay your bills (no charge) and transfer money between Ally and your local bank. There also are unlimited deposits (including by smartphone) and ATM withdrawals.
This is a way to do family banking without the downside of borrowing and credit and debt.
Square Cash is a way to email cash (free of charge) from one debit card to another (Master card or Visa). No login or password is required. This is meant only for person-to-person transfers.
Talk to your friends. There are many ways to buy things, pay the rent and send money to people without going back into debt.
If you think your finances are truly out of control, consider contacting a debt relief agency to help get yourself back on track.
Photo credit: Flickr/laurenlemon