Recently I had a talk with my dad about his financial success, and one of the things that fell on my heart was that he practised being debt-free throughout his life.
My dad is financially sound, but he is not wealthy. He has a decent house, which does not belong to any bank, no loans, no rents and no credit card debt. Being debt-free is exciting, he says. Well, with his credit history, he can get a loan, so life is slightly perfect. But I recommended to him, to do away with borrowing if he ever gave that a thought.
Stay debt-free, be wise with money, and you can live a credit-free life.
Unfortunately, that is the life most people wish they had. Yes, you can have a meaningful life without borrowing. It is difficult for most people to get enough to rent, let alone buy their own homes.
Here are some tips on how to become debt-free on a low income, if that appeals to you
1) Have an emergency fund
A lot of people use credit as a sort of last resort in unexpected situations. Rather use your current savings to make your emergency fund. This will save you from debt when something unexpected comes up. Living without credit can be hard to achieve, but having a good “rainy day savings” will be your way out from borrowing.
2) Save for those goals.
Having gotten the emergency fund adequately covered, start saving for other important things. Do you plan for further education? Do you want to travel the world? Buy a new home? Decide on your highest-priority goals, and set a figure. Save towards the goals now. Without borrowing, it should be fairly easy.
3) Get a debit card for yourself
You do not have to borrow after getting a debit card to transact business, as whatever you buy is charged straight from your account. This means you can only buy when you have enough money. Remember, a debit card is not the same as a credit card. Anytime you use a debit card, the money is taken from your current account. With a credit card, what you are doing is borrowing money to be repaid later.
4) Make your money work for you
The main problem with credit is that you throw away money by paying interest on the money borrowed. In place of that, gain interest by investing your money. This means, instead of paying interest when you borrow, you are rather earning interest from your investments. Either way, we have an interest, but that depends on the side you stand-Borrowing or going for credit. It takes capital to make more money than to make money from your salary.
5) Pay cash for your car
Those who are guilty of purchasing cars with car loans all their lives, this may seem a herculean task to buy a car with cash. The good news is, it is possible and a lot of individuals do it. In place of settling loan payments, and paying twice the price of the car over the course of the loan term, make savings towards it over the course of the years you plan to buy the car in future.
Use the car you have now as long as possible. Have the amount you will otherwise have paid as loan for a new one saved, then buy your new car in cash, in future. It will be a second-hand car, but it will still be yours.
6) Save for retirement
No matter how bad your credit score is, this is common knowledge. Without being saddled with debt, you can increase your savings for retirement. Then you can go on early retirement. Be grateful for not being in debt.
7) Carry enough cash when you travel
It is popularly believed you cannot book a hotel or get a car without a credit card. This is not true. You only have to do more hotel search. This applies to car rentals too.