Living Without Debt
Living without debt can be a challenge, but it can also help you avoid major financial problems. Debt-free living also offers the advantage of not having to pay interest and other financing fees. The downside is that you may eventually want or need to take on some debt for a major purchase, such as a home. Without a history of repaying loans or lines of credit, you may have trouble qualifying for a mortgage.
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Budgeting
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To live without debt, you must spend less than you earn. For many people, the only way to do this is to establish, and stick to, a budget. A good budget projects your expenses and income so that you'll know exactly how much money you have to spend each month and what you can spend it on. Periodically review your budget to account for changes in income and expenses, to make sure it still meets your needs.
Savings
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One way to stay out of debt is to make regular monthly contributions to a savings account. Having a year of living expenses in the bank can be a great cushion in the face of a medical problem, family issues or job loss.
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Paying Cash
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You can't spend more cash than what you have with you. When you have to actually count out your cash, as opposed to using a credit or even a debit card, you'll think more about where it is going. While using a debit card is a safe alternative to carrying around large amounts of money, for smaller purchases, using cash can be very helpful in controlling spending.
Establishing Credit
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Even if you decide to live debt-free, you shouldn't overlook the need to build a good credit history. Employers, landlords and insurance companies all use credit scores to make decisions about jobs, rental housing and policies. Plus, even if you are a great saver, it can take many years to save up enough cash to buy a house. Establish credit by getting a credit card, using it to make small purchases, and routinely paying the full balance on your account. Another good idea is to take out a small loan at your bank or credit union, put the money into your savings account, and just make regular, on-time payments. After a few years, you'll establish a good credit history that can help you get the home or job that you really want.
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