Habits that you need to adopt for a debt free life

As you begin your path toward a debt-free life, take inspiration from those who have succeeded in making debt-free living a reality.

By adopting the habits and characteristics of debt-free people, you can start to live within your means and work towards financial stability.

Adapting your lifestyle to incorporate better financial behaviours can help you clear debt and avoid falling into debt in the future.

Living with the burden of debt is tough, and dishearteningly common. By taking control and clearing your debt, you can start to save for and live the life you want, without the stress that debt brings.

Wherever you are on your journey to debt-free living, re-evaluating the way you spend, save and approach money matters is essential to success.

The path to a debt-free life is not always easy and will involve sacrifice, but these will lead to a very worthwhile outcome – happiness, freedom and stability.

Here are some habits and behaviours you need to adopt for a debt-free life.

Emergency savings fund

If you were hit with a large, unexpected bill, could you afford it?

For a dishearteningly large proportion of people, the answer would be no.

It is widely considered that an emergency savings fund is essential. Having a financial cushion can offer a safety net in the event of an unanticipated expense or bill.

Without savings, an unplanned bill can lead to debt and long-term financial damage.

Accumulating savings amounting to 3-6 months worth of living expenses in case of an emergency is generally advised.

Putting aside money into savings may seem difficult, especially to those that are in debt or ‘chronically broke’; this means those that live paycheck to paycheck and is a term that applies to over 70% of the UK’s working population.

The best way to start building up your own emergency savings is to analyse your outgoings and identify spend you can reduce, to instead save.

Regularly contributing to savings is a habit widely adopted by debt-free people. Savings are incorporated into their budget to ensure they consistently put money aside for both emergencies and goals.

Set goals

Setting goals motivates you to stick to your budget and build savings, helping you to avoid debt. Identify what is most important to you, your dreams and ambitions.

By outlining what you’re working towards, both short-term and long-term, it gives you focus.

It’s much easier to stay disciplined and avoid overspending. If you have a clear goal you’re working towards, you will more willingly save money as you’ll have a greater sense of its value to you.

Regularly check your progress, to further encourage you and to make sure you’re on track to achieve your goals.

Budget

Budgeting gives you more control of your finances and is a crucial tool for a debt-free life.

By identifying which of your expenses are essential, you’ll highlight unnecessary outgoings and areas of spend that could be cut back.

Allocating proportions of your income can give you better insight into your finances and will ensure you are living within your means.

Incorporating a savings plan, dictated by your goals, encourages you to put aside money periodically.

There are many great resources and tools out there if you need some extra help or inspiration when formulating your budget.

Budget planners such as this one from the money advice service can be a valuable tool.

Use cash

A relatively easy, yet effective change you can make to your spending habits is the use of physical cash. You develop a far greater understanding and appreciation of the value of each pound when you’re handling actual money.

Most transactions now involve little more than a quick scan of your card or the press of a button online. Whilst convenient, these types of purchases can be problematic.

It is much easier to overspend when you cannot physically see how much money you have left.

Many people are unpleasantly surprised when they later check their remaining card balance. With cash, you can clearly see how much you have left and this awareness leads to more care and control over your spending.

Once your money is gone, there’s no risk of accidentally dipping into an overdraft, or having to pay off purchases at the end of the month, as you do with a credit card.

The use of cash reminds you that the transaction you are making is real. This can prompt you to re-evaluate purchases when you’re physically handing over your hard-earned cash.

Highly recommended by debt-free people, this simple habit can change your perception of purchasing and provide you with greater clarity and control over your finances.

Communicate

Communication seems to be a common theme among advice from debt-free people.

They vouch for the importance of having open, honest discussions regarding your finances with your partner, family, friends and even your children.

The benefit of talking over your financial goals and situation with others is that it can add accountability, clarity and can provide you with support.

As you adopt a new lifestyle and habits to clear or avoid debt, difficult decisions may arise.

Having a positive support network of people that understand is invaluable. Whether they give you advice or simply offer encouragement and praise as you make progress – it all helps.

It is important to be open with your partner. If you’re trying to conceal your financial situation from a loved one, it can make things worse.

It could be tempting to take out additional loans, thrusting you into further debt. Honest communication between you can reduce your stress and prevent you from falling into deeper financial trouble.

Learn to say ‘no’

When your friends or family invite you to something that would uncomfortably dent your budget it can be hard to decline.

Transparency makes saying no a lot easier and should result in a better reception to your choices.

If people are you are already aware, they’ll be more understanding when you say you can’t attend or contribute and might be more considerate, and open to more inclusive or affordable alternatives.

If you have children, it can be hard to say no to them as they ask for money for sweets or the latest piece of tech.

Explaining the value of money and outlining your financial situation and goals to them can make life a lot easier.

Explain the benefits of savings. Rather than sulk or throw a tantrum over your ‘no’, a quick reminder of that trip to Disneyland they so desperately want, should get them on board and make your life easier.

Furthermore, it should help instil a sensible approach to money in them, which will assist them later in life.

Increases Your Income

If you’re incoming is insufficient to allow for savings or to clear debts, explore ways to maximise your income.

Consider a change of career, or pick up some overtime or additional part-time work.

You could sell things you no longer need or make money online.

here’s a wide range of ways you could monetise your hobbies, from selling your artwork to starting a blog on an interest of yours.

Ask for help

The pursuit of a debt-free life can be difficult at times – don’t be afraid to ask for help. Reach out to others for guidance and advice.

If you’re struggling to afford debt repayments, ask your creditors for lower interest rates or to lower your monthly repayment amount. Most creditors are willing to adjust your repayment plan if you explain your situation.

Ask debt-free people or those who have achieved financial security, how they managed it and what advice they can give you.

Clear debts

Prioritise paying off your existing debts and avoid getting yourself into more debt.

This may seem like an overwhelming feat when the average debt per UK household is a staggering £15,400.

To begin, collect information about your outstanding debts to provide you with a clear picture of how much you owe and to whom.

Then identify priority debts, the most urgent ones you should focus on paying off first.

Types of debt you should consider to be a priority include:

• rent arrears
• mortgage arrears or secured loan arrears
• council tax arrears
• court fines
• gas and electricity bills
• TV license payments

Once you’ve created a repayment plan, focus on your other debts. Non-priority debts are still important and you should not ignore them.

If your debts are overwhelming or over a certain amount, you can get additional help. There’s a wide range of options available, depending on your circumstances.

All the below options are viable ways to reduce your debt, but each has different requirements and there’s no one-size-fits-all solution.

• Individual Voluntary Arrangements (IVAs) – an IVA is a formal debt solution for those who have over £5000 of unsecured debt. You can pool your debts and make one affordable monthly payment to an insolvency practitioner until your debt is written off. They coordinate with your creditors on your behalf, reducing your stress and ensuring your debts are fully managed. You can get free, independent advice on whether this is the most suitable option for you.
• Debt Management Plans (DMPs) – a debt management company will deal with your debts and look to freeze any interest and charges on your credit accounts. This is a more temporary debt solution as no debt is ‘written off’.
• Bankruptcy – often seen as a last resort, bankruptcy will completely wipe off your debt, although it comes with some undesirable consequences.
• Debt Relief Order – if you owe under £20,000 total, your income is low and you do not have many assets, a DRO might be your best option.

Adoption of these habits will support you in your pursuit of a debt-free life. Build new routines and make smarter choices and you’ll soon be on the path to financial security.