So, you’ve scrapped for every penny, tightened your belt so far you’ve started cutting your own notches, fought tooth and nail and now, finally, you’re debt free. The spring is back in your step and, as the weight of financial woe slips from your shoulders, you feel about three feet taller.
Getting out of debt can be a real battle. It takes a lot of will power and mental strength to keep going but, as they say ‘the night is darkest before the dawn’. Once you are out, naturally you’re going to feel, as well as relieved, a little proud. But there is another old saying worth keeping in mind, ‘pride cometh before a fall.’
So once you get debt free, how do you make sure you don’t relapse into the negative habits of the past? Here are four tips for helping you remain on solid financial ground:
1 – Beware the benefits of being debt free
While in the thrall of a debt problem you’ll have found it painstakingly difficult to obtain credit, even when it was of vital importance. Why? Many lenders fear that when people in debt apply for a loan, even if they only apply for a small amount and have stated the purpose of the loan to be something such as ‘home improvements’, they’ll actually end up using the money to perform debt consolidation. In other words they’ll take on a new debt to try and pay off an old one.
Likewise, your credit card spending limits will have been reduced. Now that you’ve broken the cycle of debt, these (relatively) easy to obtain forms of credit will be available to you once again. After months of living on a shoestring budget the temptation to use these options to go and indulge yourself is huge. However, it is important that you only start using credit again gradually. One advantage of having not been able to get credit in the past was that at least it stopped you from incurring more debt. You’ve managed to live without credit. Now, if possible, maintain the changes you made to your lifestyle that allowed you to do so.
2 – Never forget how it felt
Don’t let the elation of being debt free erase the trauma you went through to get there. Debt is dangerous, not only for your finances, but also for your health. The toll it takes on you mentally can be heavy, sometimes developing into potentially life threatening conditions such as depression. The anxiety that comes with being in debt can also impact you physically, raising blood pressure and causing insomnia and fatigue.
With a brighter future finally in front of you, dwelling on the past may be the last thing you want to do. But unless you understand your past, you’re bound to repeat it.
Try and set down on paper how that period of your life felt. Take your cards, fold this piece of paper around them and stow the bundle away in an envelope. If you ignore everybody else’s advice and reach for the cards, perhaps the voice of your previous self will sway you.
3 – Create a network of support
People will do all sorts of things to themselves without feeling guilty about it. However, when it comes to friends and family we tend to be a lot more considerate. While it is easy to make excuses to yourself (and accept them), it’s less easy to pull of with the people who know you best.
One great way you can use this facet of human nature to help keep you debt free is to arrange to share your credit reports and bank statements with a friend once every few months. You’ll be surprised just how effective this will be in reigning in your spending.
One of the problems with credit is that you can spend without the transaction feeling real. Using this method, every time you decide to pick something up on the card, you’ll imagine just how every purchase will look on paper as your friend reads through it. You can even use social networking to pull in support from other people from your circle of friends who find themselves in a similar situation.
4 – Don’t feel you can’t ever use credit again
‘Everything in moderation’ is a very good dictum, especially when it comes to credit because, not only can you overuse credit, it is also possible to under use it. For example, if you close all your cards and decide to stop using loans, it may actually harm your credit file.
At some point in the future you are probably going to need borrow money, be it for a car, a deposit for a flat, or any other reason. When deciding whether you are an acceptable risk lenders will want to see that you have been able to manage credit well in the past. If you refuse to use credit again, having been in debt before, it can be hard to build your credit rating back up. Using a credit card infrequently and paying it off instantly at the end of each month is a good way to show you are capable of staying on top of your finances.
About the author: Jason Henderson has worked for many years as a personal finance advisor, and he now shares much of his advice on his Financenet blog.