Three Tips to Debt Free Living

According to a recent study, over 40 percent of Swiss citizens belong to a household struggling to repay some form of debt. This however, is not very surprising as Switzerland has been recognised as the world’s most expensive country.

Debts incurred may be payment arrears– common with one out of five people. Some are caused by unpaid or late tax payments, others are as a result of unpaid insurance premiums. Occasionally, rent, mortgage, or alimony may run some into debts.

Although living debt-free might seem like such an impossible feat to achieve, it is possible but may require some discipline, un-learning bad spending habits, and adopting healthier spending habits. To cultivate a healthier relationship with money, there are a few tips to learn.

The first tip is to follow the 50/30/20 rule. Harvard bankruptcy expert Elizabeth Warren used the term in her book “All Your Worth: The Ultimate Lifetime Money Plan” to enlighten readers on how to spend and save money. The rule is hinged on the idea of spending 50% of your income on your needs, 30% on your wants, and keeping 20% into your savings account or into repaying debts. These percentages are the ideal maximum you should spend. You may spend less than these percentages, leaving even more money for other financial goals.

The second tip is to not rely on credit cards. Credit cards should be used only in case of an emergency but refrain from becoming dependent on them and constantly using them. Don’t use one except you simply must. Instead, use the money you already have rather than borrow more. Financial expert Dave Ramsey is credited with saying, “Don’t rely on credit cards to catch you when you fall.” Because, it won’t. It will only drag you down even further.

'Don’t rely on credit cards to catch you when you fall.'

The third means is to live within your means. To know for sure if you are living within your means, calculate your debt-to-income ratio. Add up all your monthly debt payments and divide that by your monthly gross income to discover what your current debt-to-income ratio is. Ideally, your debt-to-income ratio should be below 10-15%. Anything over a 43% debt-to-income ratio is a red flag to potential lenders and shows that you are living beyond your means.

A bonus tip to help any individual struggling with debt is to make more, yet spend less. If you’re struggling seriously to pay off some debts, you should look for ways to increase your income and divert that extra money into paying off debt as quickly as possible. Whether it’s taking on a part-time job, selling some of the stuff you don’t need, or negotiating a raise with your boss, think of some ways to earn some more money for at least a few months and starting relieving yourself off the debts.

By implementing the suggested tips above, you can work your way out of debt and into wealth.