5 Post-Debt Tips: How to Break the Cycle
The freedom, peace of mind and extra disposable income that comes with having little to no debt is a gift. So, if you’re focused on paying off a large amount of debt, we can only imagine that you’ve been looking forward to the end of that road like nothing else!
But, it’s incredibly important to remember that paying off debt doesn’t make you immune to getting into debt again in the future. In fact, if you ended up in debt to begin with, it’s entirely possible that you may repeat the cycle if you don’t assess your financial behaviours first. This isn’t to say that debt is only created through personal choices – financial emergencies, like a sudden loss of income, can also put people in a tight spot. However, for many people, the two are linked: habits like neglecting saving or over-spending when times are good can make it tough to handle a financial emergency without taking on debt when things get a little tougher.
In that light, we’ve got 5 tips to help you break the cycle and live a debt-free life.
1. Don’t let lifestyle creep affect you
Some people make significant progress in paying down their debt when they get a higher paying job or a raise at work. Others get it done by reducing their non-essential spending as much as they can. If debt is a top priority, it’s natural to put as much of your disposable income towards what you owe to reduce the amount of interest fees you may be on the hook for otherwise.
However, if you’re getting close to paying off what you owe, it’s easy to start letting that extra income go towards consumption. Rationalizing that “it’s OK to start spending again” can be a slippery slope, so be cautious! Don’t forget how much effort it took to pay off your debt. Particularly if your debt is consumption-based, returning to your old spending patterns once you’re in the clear is a recipe for trouble in the future.
2. Maintain your debt-reduction habits
Habits that you stick with over a long period of time are more likely to become ingrained in your life: you instinctively brush your teeth twice a day because you’ve done so for your entire life.
If you’ve figured out savings strategies that worked for you while paying down your debt, don’t be so quick to abandon them when your situation isn’t as dire! For example, if you find that making a grocery list, only taking cash to the store and buying name brand products saved you a bunch of money, keep doing it! Sticking with a more rigid routine will help you avoid getting into debt again in the future. It’ll also highlight places where you can reduce your spending and put that money into savings.
3. Leave yourself reminders
Never underestimate the power of a visual reminder. If you’re in debt, it’s likely that it’s a focal point in your life. But, as you approach being debt-free, thoughts of debt will likely move away from the front of your mind. While this is natural (and fair enough – no one wants to think about debt all the time!), it can become problematic. If you start forgetting how easy it is to get into debt and how hard it is to get out of it, you may be prone to repeating the same behaviours that landed you in debt to start.
To help combat this, leave yourself notes or reminders where you know you’ll see them. This could be a post-it on your fridge, a note on your bathroom mirror or a scribble at the top of your agenda each week. These could be reminders to spend less, save more, or simply that debt sucks and you don’t want to go through it anymore. Whatever works for you, give it a try! If you can leave it in a place where you know you’ll see it before you’re tempted to make an impulsive spending decision, even better.
4. Treat yourself on occasion
Paying down a large amount of debt is no easy task, and once you’ve done so, you should give yourself some credit for the accomplishment it is. However, this new reality might leave some a bit scared of their credit card – concern about ending up in deep debt all over again is real.
However, it makes sense to treat yourself from time-to-time to help stay on track. If you try to live without doing something nice for yourself occasionally, you might end up cracking after a stressful day and go way overboard with your spending. Instead, if you know you’ve got a treat coming up soon, you’ll be more likely to talk yourself out of the desire to spend impulsively.
5. Build your emergency fund
Finally, if you’re trying to stay out of debt going forward, make sure to build up your emergency fund! Having an emergency fund will ensure that you’ve got a pool of liquid cash to call on when an unexpected expense arises. That way, you won’t have to use credit to cover your costs and potentially rack up interest fees, spurring the cycle of debt all over again.
Particularly if you’ve just finished paying off a large amount of debt, consider putting the same amount you’d have put towards debt into your savings instead. That way, you can avoid lifestyle creep and build your emergency fund in one move!
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