How to Break the Debt Cycle and Get Out of Debt for Good

You worked hard to pay down your debt.  You did everything right to stick to a budget and tackle your bills.  Now that you are debt-free, you don’t want to slip back into old habits and wrack up the debt again.  Here are some pitfalls to watch for regarding your finances to make sure that you don’t go back into debt again. Learn how to break the debt cycle and get out of debt for good!

This post is sponsored by CreditRepair.com.  All opinions are mine alone and are honestly conveyed. 

Getting out of debt is intentional.  But what you may not realize is that staying out of debt is also intentional.  Being able to pay down your debt and remain debt-free is not a “fad diet” for your finances, it is a total lifestyle change when it comes to dealing with your money.

Get rid of old spending habits

The mistake

The biggest mistake that you can make is working hard to pay off your debt, to then go back to your old ways and spend money the same way that you did before.  Those old spending habits put you in debt.  You must realize this and then reject that behavior.  If you don’t change your attitude towards spending, you will end up in debt again. 

The solution

If spending on credit cards is too easy for you and you simply lay down the plastic for every little (or big) purchase you make, then don’t use credit cards.  You can limit your credit card use by:

• Leave the credit card at home and only take cash with you
• Use a credit card for only certain items, such as gas for your car each month
• Get a credit card that has a low limit, to force limited spending
• Use only a debit card— this way you can only spend however much you have deposited in the account

Prioritize your debt

The mistake

If you don’t have a plan, it is really hard to reach your goal.  So if you don’t make paying your bills a priority, and you spend on your wants, rather than your needs, you will end up in debt again. 

The solution

When you get paid each month, make sure to prioritize paying all of your obligations each month first.  Don’t go shopping, or out to eat, or whatever your spending splurges are… until you’ve paid your bills.  Once all your expenses have been paid, the money that you have left over is your disposable income.  Disposable income can be spent on the “wants.”

Create a budget

The mistake

Do you know exactly how much you make each month, and how much you owe?  Surprisingly, many people don’t.  Failing to plan for your bills each month is basically setting yourself up to fall back into debt.  Taking the time to sit down and write out all of your expenses can also be eye opening.  You may find that you are spending more money on certain things than you realized. 

The solution

The first thing that you should do when you are trying to get out of debt and stay out of debt is create a budget.  Figuring out how much money you have coming in each month and how much is going out may even be shocking.  Sometimes, we don’t even realize just how much is being spent on credit cards until it is written down in front of us.  A budget will allow you to understand your current situation.  It will also be easier to see areas that need to be changed.

Learn to say “No”

The mistake

It can truly be hard to “keep up with the Joneses,” or whomever it is that you hang out with.  Maybe your friends like to go out to eat at high-end restaurants, take in concerts, movies, or shows on a regular basis, or go out to happy hour after work every day.  Those things can all be very fun to do with family or friends—but they can also be quite costly.  And besides wrecking your budget, it can be even harder to say “no” to people that you truly enjoy spending time with.  After all, saying “no” to going out can create hard feelings, and you risk getting “left out” of future fun with the group.      

The solution

Be honest about your financial situation.  No, you don’t have to go into specific details about your finances, but you can let your family and friends know that you are trying to save up money to tackle student loans, buy a new house, or even to take a dream vacation.  Your family and friends will understand and respect your wishes.  Perhaps they will even be willing to figure out other ways to have fun on a budget!  Besides, letting your family and friends in on why you don’t want to go out lets them know that you aren’t avoiding them personally and can save some hurt feelings.

Don’t over-extend your new budget

The mistake

It can be really easy to add just one more item to your budget.  Financing a new TV will only add $20 per month to my budget, that new sofa will only add an extra $50 per month, the newest smartphone would only increase my budget by $10 per month… you get the idea, things can really add up quickly!  And pretty soon, you are in a situation that strains your budget and you are living paycheck to paycheck again. 

The solution

Create a financial plan (budget) and stick to it.  Don’t go window shopping for a new TV or furniture if you don’t truly need it.  Decide before you go to the cell phone store (or whatever purchase you may be looking to make) what your budget is—and don’t let the salesperson talk you into something more expensive—who knows, maybe you can even choose an option to save a few bucks a month!  The point is, you can’t make little exceptions here and there because they can add up to a much bigger financial obligation.   

Bottom line: if you don’t want to get back into debt again, you will need to make a concerted effort to do things differently this time around.  You can’t fall back into your old money habits and expect a different result.