How to Avoid Debt

Debt is a common situation most people face at some point in their lives. Although it might seem like a necessity, it is possible to avoid debt. But how can you steer clear of taking on debt?

There are numerous ways to avoid debt, from building an emergency fund to creating a budget to clipping coupons and more.

Ways to Avoid Debt

When you take on debt, it can negatively impact your life. You’ll be forced to make decisions that prioritize your monthly debt payments instead of what really matters to you.

Luckily, there are many ways to avoid debt. Let’s explore the top strategies.

Related: 11 Life-Changing Reasons To Pay Off Debt

1. Only Buy Items You Can Pay For in Full

One of the most effective ways to avoid debt is to only make purchases you can pay for in full. While this is easier said than done if you have a credit card, it truly can stop debt in its tracks.

When you decide to take the cash-only route, you’ll likely have to skip some purchases. That said, the ability to stay out of debt is worth it.

2. Build an Emergency Fund

An emergency fund can be your first line of defense against debt. With a solid emergency fund, you can handle the unexpected expenses that life will inevitably throw your way without having to use a credit card or take out a loan.

The Consumer Financial Protection Bureau recommends saving between three and six months of expenses in your emergency fund. Although it may take some time to build an emergency fund, having it in place will create financial security.

3. Focus on What You Need

Take some time to evaluate the needs and wants in your life. A few examples of needs include the roof over your head, the food on your table, and transportation to work.

Sometimes wants can sneak into the needs column. For example, takeout is not a need. Neither is a luxury vehicle when an older car can do the job.

Prioritize your needs over your wants. When you want to make an unnecessary purchase, don’t move forward unless you have the cash to fund it. Sticking to the bare essentials might not be fun, but it will keep you out of debt.

4. Create a Budget That Works for You

A budget should help you achieve your financial priorities. It should not make you feel excessively restricted in what you can spend.

Make sure to include purchases that matter to you in your budget. These can be little splurges like an affordable treat or an experience with your loved ones.

As you build a budget that works for you, prioritize the fact that you want to avoid taking on debt. Also, include monthly savings that could cover unexpected expenses to avoid taking on debt.

5. Don’t Take Cash Advances From Your Credit Card

If you have a credit card, the option to spring for a cash advance can be tempting. However, cash advances come with high APRs. These can make it difficult to get out of the red.

A cash advance is likely not the only solution to your financial dilemma. If at all possible, find another option.

6. Resist Lifestyle Inflation

Lifestyle inflation can slowly creep into your life and wreck your finances. You might experience lifestyle inflation when you upgrade to a nicer apartment, splurge on the newer car, or limit cooking at home in favor of dining out.

Typically, lifestyle inflation happens over time and involves a little boost here and there. But these small upgrades to your lifestyle can have a significant impact on your budget.

Of course, it is natural to give your lifestyle a boost now and then. But knowing when you can afford to spring for the upgrade is key.

7. Save Your Raises

When you get a raise, the first thing you want to do is celebrate. And you should!

However, you shouldn’t allow your celebrations to involve upgrading your entire life to consume your recent raise. Instead, celebrate frugally and choose to tuck most of your newfound income away for other financial goals.

You could build your emergency fund, invest for the future, or save for a big vacation. Whatever you do, don’t spend all of your new income.

Related: How to Celebrate Paying Off Debt Frugally

8. Clip Coupons

Remember when your parents were sitting around clipping coupons? They were on to something.

Coupons can help you keep your expenses low. Personally, I clip coupons digitally with the help of Ibotta and look for cash back opportunities when online shopping with Rakuten.

9. Increase Your Income

A surefire way to avoid debt is to increase your income. There are countless ways to bring in extra income. You just have to find something that works for you.

A few good ideas include starting a side hustle, opening an Esty shop, or snagging a part-time job.

When you increase your income, you can set aside savings to prevent debt in the future.

10. Never Touch Your Retirement Funds

Although it can be tempting to tap into your retirement fund to avoid taking out a loan, that is likely not a good idea.

Saving for retirement can seem like a task that you could put off for later. But it is important to start saving early and often for retirement. That means leaving any funds you are able to save safely tucked in your retirement accounts.

Not only will this allow your investments to grow, but you’ll avoid the IRS penalties.

11. Try Your Hand At DIY

DIY projects may not be your favorite activity, but they can help you stay out of debt. When you tackle projects by yourself, you are typically able to save quite a bit of money.

For example, when my husband and I bought a new house, we decided to do almost all the cosmetic updates ourselves. We installed the floors, painted the walls, and gave the kitchen a facelift on our own. With our DIY attitude, we saved thousands instead of taking on debt.

12. Downsize Your Living Space

A big living space can be a luxury. But if you are struggling to make ends meet without taking on debt, then downsizing your living space is a great option.

You might have the opportunity to save hundreds each month by moving into a smaller home. Imagine the financial freedom that comes with this choice!

The Bottom Line

It is possible to avoid debt. While it is not always easy, the right combination of financial fortitude and planning ahead makes debt prevention possible in most situations.

However, if you are already in debt, there is still hope. You can pay off your debt and change your life forever. Many of the above tips can help with the process! can help as well. Take advantage of the free tools offered by to help you transform your financial future. Sign up for a free account today.

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