“A debt problem is, at its core, a budgeting problem.”
I believe that a majority of debts can be avoided by simply budgeting. Yes, I understand that there is occasionally something like a medical emergency that is very difficult to prepare for that can result in medical debt, but for the most part budgeting can help you avoid going into debt.
Budgeting to Avoid Auto Loans
The average auto loan balance is $18,500 in America. That’s a pretty sizable chunk of money, so how can it be avoided? Savings, discipline, and patience; that’s how. First, you have to save some money to put toward buying a car. Then, you have to have the discipline not to spend that money just because it’s burning a hole in your pocket. You also have to have the discipline not to cave in to the “I want it now!” mentality that is so common today. What I mean by that is you have to have the discipline not to go to the car dealership before you’re financially ready to purchase a car and walk out with an auto loan because, well, you wanted the car now. Lastly, you have to have the patience to give yourself enough time to save up the money to pay cash for a car.
Let’s say you want to purchase a car that is going to cost $15,000 total. For simplicity reasons, we will just say that tags and taxes and all of those fun fees that you have to pay when you buy a car are included in that $15,000. I want you to save up enough money to be able to pay for that $15,000 car with cash-money. In order to do so, you will have to create a budget to figure out how much you are able to set aside each month and how long it will take you to reach $15,000. Say you make your budget and you’re able to set aside $500 a month for the car. It will take you two and a half years of saving $500 a month to reach $15,000. I know, that sounds like a long time for a car that is only $15,000, but I never said it was going to be easy. Trust me, though, your future self will thank you when you’re not throwing your hard-earned money away on interest for a depreciating asset.
Budgeting to Avoid Credit Card Debt
The average credit card debt is $6,195 in America. Why do people go in to credit card debt? Because credit cards make it extremely easy to spend more than you make. The average credit limit that Americans have across all of their credit cards is $22,751. That’s a massive credit limit that can be spent on virtually anything. And it’s so easy! All you have to do is pull the card out of your wallet and swipe it or insert it if it has a chip and – boom! – you just bought whatever it is you’re purchasing. It could be a $300 grocery bill or it could be a $200 pair of shoes, it doesn’t matter.
If you’re not budgeting, then you’re not tracking how much you’re spending and you even might not be tracking how much you’re earning. It can be really easy to rack up a few thousand dollars in credit card debt if you’re not paying attention. Simply having a budget can keep you from going in to credit card debt. Avoiding credit card debt doesn’t really require any savings, it only requires awareness and a bit of discipline if you don’t have the money to cover some of your wants.
Avoiding Student Debt
The average student loan debt is $32,731 in America. With this type of debt, really the only people who can avoid student debt are the people who haven’t taken out student loans to go to school yet. This is because most people only go to college once and only take on student loans once. Unlike buying multiple cars throughout life, people typically aren’t going to school multiple times throughout life. If you get a job and create a budget before you go to college, you can avoid a lot of, if not all student loans. My previous post, “The Student Loan Crisis,” goes into more detail on student loans and how to avoid them, so I will just briefly go over some points on avoiding student debt.
- Get a job during your high school or pre-college years and save like crazy to pay for your degree. Take a gap-year to work and save if necessary.
- Apply, apply, apply for scholarships and grants and make sure you keep your GPA up while you’re in college so that you can retain those scholarships and grants.
- Get a part-time job (or a couple of part-time jobs) while you’re going to college.
- Pick a major before going to school so that you don’t waste time and money on classes that don’t matter.
- Take prerequisite courses at a community college before going to a university.
- Avoid paying out-of-state tuition.
- Don’t pick an expensive college simply so you can identify with that mascot if you can’t afford that college’s tuition.
- Don’t take out loans for the purpose of covering living expenses.
- Don’t spend money that you don’t have on things that you want. You are a broke college student, so live like a broke college student.
If you would like some one-on-one advice on creating a budget or creating a plan to avoid or get out of debt, click on the Budget Coaching button below or contact me to schedule a free consultation call! Also, if you haven’t already, sign up for my monthly newsletter! I will be sending out exclusive content each month and you will get a free budget guide as a thank you for signing up!
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