Between home mortgages, travel credit cards and car loans, debt is everywhere. Yet, it’s impossible to escape the message that debt is normal, helpful and there is such a thing as “good debt.” Financial expert Dave Ramsey warns this is a lie, and one that has been aggressively marketed to keep Americans financially trapped.
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In his powerful video, Ramsey exposed debt as a product that banks, credit card companies and lenders profit from — at your expense.
The cycle of debt is a devastating trap to fall into. Many people work hard their entire lives only to find they have nothing to show for it because their money has been tied up in payments and interest. The promise that debt will help you get ahead is a lie that benefits the lenders — not you. Here are five practical tips to help you steer clear of debt.
Create and Stick to a Budget
One of the most effective ways to avoid debt is to know exactly where your money is going. Creating a budget helps you plan your spending and ensure you live within your means. Start by tracking your income and expenses, including fixed costs like rent or mortgage, utilities, groceries, and discretionary spending such as dining out or entertainment.
Once you have a clear picture, allocate funds for each category. Be sure to prioritize essentials and savings over discretionary spending. A budget isn’t meant to restrict you but to give you control. When you stick to your budget, you avoid overspending and needing to use credit card debt to cover the overage.
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Build an Emergency Fund
Unexpected expenses like car repairs, medical bills or job loss can derail your finances and push you into debt if you’re unprepared. That’s why it is crucial to build an emergency fund.
The rule of thumb is to save at least three to six months of living expenses in a savings account. This fund acts as a financial safety net, allowing you to cover unexpected costs without relying on credit cards or loans. Even starting with a small amount and consistently adding to it can make a big difference over time.
Use Cash or Debit Cards Instead of Credit Cards
Credit cards can be tempting, especially with rewards programs and promotional offers. However, they also make it easy to spend money you don’t have. Using cash or debit cards helps you stay within your budget because you can only spend what you physically have.
When you pay with cash, you feel the immediate impact of your spending, which can curb impulse purchases. Debit cards draw directly from your checking account, so you avoid accumulating balances and interest charges. If you do use credit cards, pay off the full balance each month to avoid debt.
Avoid Financing Big Purchases
Financing big-ticket items like cars, furniture or electronics might seem convenient, but it often comes with high interest rates and long-term payments that can trap you in debt. Instead, save up for these purchases and pay cash once you’ve saved enough. This approach requires patience, but it keeps you from paying extra in interest.
Prioritize Debt Repayment and Avoid New Debt
If you already have debt, make a plan to pay it off aggressively. Focus on paying more than the minimum payments to reduce interest costs and shorten the time it takes to pay off. Methods like the debt snowball, where you pay off the smallest debts first, can help you build momentum and motivation.
At the same time, commit to avoiding new debt. This means saying “no” to unnecessary purchases and resisting the pressure to keep up with other people’s lifestyles. Remember, every dollar you put toward debt repayment is a step closer to financial freedom.
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This article originally appeared on GOBankingRates.com: Dave Ramsey: Debt Is Most Aggressively Marketed Product in US — 5 Ways To Avoid It
