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Beyond Debt Reduction

If you've ever had a good chunk of credit card debt that you've struggled with and finally paid off, you know that the last thing you want to do is dig that hole again. Yet, some people slay the terrible debt dragon only to get burned by its fiery breath a few years later.

That's when it's time to shift your thinking away from simply reducing your debt to figuring out how you can avoid debt. Not all debt is bad. Most of us could never buy a house without it. And if you want to build creditworthiness to buy that home, you can't move to the woods and live on cash and bartering alone.

A lot of debt isn't good debt, and in that category we're talking mostly about high-interest consumer debt. Many people would throw car loans into this category, too. If you want to avoid getting trapped in the really expensive cycle of financing your everyday purchases with credit, change your habits and thinking about your credit cards and the unavoidable offers to buy expensive stuff with the promise to "buy now, pay later!!!"

  • Build your first wall against unwanted debt by accumulating an emergency fund. Not all debt comes from frivolous spending: a job loss, medical problem, or other setback can cause even the most debt-averse person to rely on credit cards just to make do. Limit the possibility that an emergency will send you spiraling into debt by putting three to six months of expenses someplace safe. Check out our Savings Center for more information.
  • Take a look at the rest of your safety net. That means having adequate car, health, disability, and life insurance, or anything else that will protect you from a really catastrophic event. Visit our Insurance Center for help figuring out what you need.
  • Know your faults. Can you simply not stop yourself from getting carried away when shopping at the mall? Are you a sucker for anything that looks like a deal, whether you need it or not? Do you obsessively scour catalogs or online auctions? If you can figure out what triggers the spending that might get you into debt, you can limit or stop it. Curb those behaviors that lead you astray.
  • Track your net worth. This can be a great psychological boost while paying down debt. It can also be a good bulwark against getting into debt in the first place. Calculate the hit your net worth would take if you went into debt for that top-of-the-line television, and then consider how long it would take you to get back where you started. That alone might deter you from taking on debt.
  • Plan ahead. It sounds easy to anticipate large purchases and save for them, but it can be hard to do in the real world. Sometimes the car falls apart without warning. The dining room set you've been eying suddenly goes on sale. Especially if you have a hard time anticipating specific purchases, you don't necessarily have to earmark every dollar of savings. Try opening an account and starting to amass money for larger purchases in general.
  • Change your thinking. Debt is easy to get and available everywhere. Merchants want you to think about debt as the easy way to get what you want, and get it fast. Start thinking about debt, instead, as a way for merchants and finance companies to get you to pay more than sticker price for your purchases. Suddenly, those offers won't seem so appealing.
  • Get angry. If you've pulled yourself out of debt, you're probably harboring a few opinions about credit companies that aren't appropriate to print in a family financial website. If you're not really angry, go add up the finance charges and fees you paid over the last year or so. (See, now you're good and steamed!) Harness that frustration in your favor and vow never again to give the credit cards the satisfaction of taking an extra dollar of your money again.
  • Resist the crowd. I know, everyone's doing it. How bad can debt really be? Do you know anyone who's written a check to purchase a car? But just like potato chips and soda, the widespread availability of something doesn't mean it's good for you.

Give yourself an extra inoculation against accumulating debt by visiting the Credit Cards and Consumer Debt discussion board, where you can watch other Fools struggle and succeed in killing off their high-interest debt. You'll also get great advice to erase or avoid debt in the future.

For further Foolishness:

Fool contributor Mary Dalrymple welcomes your feedback. The Motley Fool has a disclosure policy.


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