How to Avoid Debt

How to Avoid Debt

Being a millennial, I am part of a generation that is completely overburdened with debt. It starts with student loan debt and the debt burden worsens with things like car loans, mortgages, home equity loans, credit cards and the list goes on and on. I’m here to tell you there are ways to avoid this debt. I’m not saying it’s possible to avoid ALL debt forever (unless you’re willing to live that type of life), but definitely some of it.

Choose your college wisely – some people end up with student loan debt solely because they choose an expensive private school. The problem is, just because a college is more expensive, does not necessarily mean it will offer you a better education. I’m not knocking private colleges; I attended one myself. What I am saying, though, is that private school is NOT the only option and there are plenty of state schools that offer an extremely competitive education. It is also worth it to consider the specific major you are choosing or the specific job you would like after college. There are some jobs that you can just as easily get with a state school degree versus an Ivy League degree. Additionally, when contemplating taking on a large amount of debt, you want to consider the salary potential in the job you are hoping to get afterwards. If you are going into a low-paying field, where the average salary is say $30K, you may find yourself very overwhelmed if you take on $100K worth of student loan debt. Just remember, a more expensive school does not automatically mean a better school.

Say No – If you find yourself in a tight financial position because you’re trying to pay off debt or because you’re trying to save for something specific, whatever the case is, you may need to pass on some things. Many people are afraid to say no because they don’t want to hurt someone’s feelings or they have FOMO (fear of missing out, for those who are not familiar with this term). The thing is, being financially strong requires you to be mentally strong, as well. It requires sacrifice. If you are stressing about how much a dinner is going to cost for a friend’s birthday, it is okay to decline. If they’re a truly a friend, they will understand. If you feel that guilty not celebrating, offer an alternative like grabbing a coffee or hanging out at home with some homemade treats.

Stop Trying to Keep Up With the Joneses – I think millennials suffer from this the most out of any generation thus far. There is a constant need to compare our lives to others because of social media. The problem with this is that someone’s social media is not their full life story. Sure, maybe you follow a girl you went to high school with that is always flashing her designer handbags, shoes and clothes, but what she’s not posting is all the credit card debt she’s racked up to get them all. Or maybe you notice that someone else is driving a brand new luxury car and you’re still driving the car you bought 8 years ago. What you’re not thinking about is your car is paid off and that person has a $500 car payment each month. The point is, you need to focus on yourself and not what everyone around you is doing. Everyone is in a different situation and has different priorities. If you’re trying to avoid getting into more debt, you need to stay focused on that goal and not anyone else’s lifestyle.


Live Below Your Means – remember the housing bubble of 2008? This was partially caused by a whole lot of people living above their means. People were putting $0 down and mortgaging the full amount of the house. They mortgages were and people didn’t truly understand the concept, so when the money came due, they were unable to pay up. People constantly want the best of the best and they are so focused on impressing others that they don’t stop to think about whether or not their decisions are sensible. People often buy big, expensive houses thinking they’ll be able to pay them easier when they get a raise or a promotion. Or they buy luxury cars because they want one, even though they really will have to struggle to make the payments. Consider your income and then determine how much you can truly afford on bills. If you’re in a minimum wage job, you shouldn’t be dining, vacationing or shopping where the top 2% do. If you want to renovate your house, that’s great. You don’t need to buy high-end marble backsplash. Buy a more reasonably priced alternative, such as tile or butcher block. If you find something you really love and can’t live without, find a lookalike.

Maintain a Budget – I cannot stress this enough. A budget is an absolute necessity to living a good financial life. A budget helps you keep all of your expenses in line. It’s important to lay out all of your fixed expenses and compare to your income. What you have leftover should be used for discretionary spending and saving. Maintaining a budget at least monthly helps make sure you don’t overspend and allows you to know exactly where all of your money is going. If you’re struggling to pay your regular monthly bills, a budget enables you to see where you can potentially cut some costs. Click Here to Download My Personal Monthly Budget!


Create an Emergency/Rainy Day Fund
– this is so very important because unexpected and unplanned for expenses are very often the thing that gets people into debt. It’s nearly impossible to plan for the unknown, but building an emergency fund or rainy day fund can certainly help! An emergency fund is a type of savings account typically used for actual emergencies, such as your car needing a new transmission or your furnace suddenly needing to be replaced. A rainy day fund is also a form of a savings account, but this is used more for things that you could technically turn down, but don’t want to, such as attending a wedding or buying concert tickets for your favorite artist who just so happened to decide to go on tour. Emergency and rainy day funds enable you to be prepared for unexpected expenses and allow you to be able to continue paying your regular bills without having to tap into that money or put things on credit cards to pay off later. Everyone has different opinions on how much you should have saved in each, but it truly depends on an individual’s personal situation. It’s safe to say an emergency fund should be more than a rainy day fund because, as I just mentioned, rainy day expenses are ones that can be avoided if need be. If you have an old car that’s got over 150K miles, you may want to save for replacing some big parts. If you have a house with a furnace that’s 25 years old (like me), you might want to have the money set aside for a new one. If you have a few good friends who seem to have been together forever, you might want to save some money for a potential wedding gift and/or travel and accommodations for a wedding. It’s a good idea to keep these accounts in a high-yield online savings account, or any other account that earns you above average returns, but the money is still fairly liquid.

Personal Escrow Account –I mentioned this in my previous post about paying yourself first, but didn’t refer to it as a personal escrow account (thanks, Shin for teaching me the name). A personal escrow account is where you set money aside on a recurring basis for a recurring expense that comes less frequently, such as property taxes. A personal escrow account is beneficial because your money is already set aside for your large expense and you don’t need to dip into the money for your regular monthly bills to pay it. Again, you are prepared and don’t need to put things on credit because you can’t afford it all at once.

Beware of Interest-Free Financing – many people think interest free financing is great, but it can actually be deceiving. Oftentimes people take advantage of 0% APR store credit cards or interest-free financing at stores when purchasing things like furniture. The problem is, this interest-free financing that they are offering is only temporary. After a few months, the interest kicks in and if you haven’t paid your bill off in full, you’re now paying more the purchase price for that piece of furniture. If you absolutely must utilize interest-free financing, make sure you pay your expenses off before the interest kicks in.


Only Use Cash – I’m personally not a fan of this option because I find that using credit cards can make you money, just by paying for things you would have already been paying for anyway. However, some people do not have the will power and end up charging more than they can afford. For those people, using cash, debit cards and checks is the best option to pay for things. The theory is by using cash, you can only buy things that you can afford. If you have $100 in your wallet and you see these shoes at the mall that are $125, you can’t buy them because you simply don’t have the funds on you. Using only cash avoids debt for you.

Not all debt is bad debt. Most people must take on a mortgage to buy a house, and that’s okay. But be careful how much you’re willing to spend on a house because along with those monthly mortgage payments, you will also have to pay property taxes, school taxes, water bills, gas/oil bills, electricity bills, etc. This is all before taking into account any discretionary spending such as a car payment or groceries or a phone bill (but let’s be serious, a cell phone is no longer viewed as discretionary). This same mindset should be applied to taking on any type of debt. Most importantly, though, you want to try to avoid high-interest debt, such as credit cards, as much as possible because high-interest debt is even more difficult to pay down.

What do you do to avoid debt or what have you done? Do you have any additional tips for avoiding debt?

10 thoughts on “How to Avoid Debt

  1. Very good pointers, especially for Millennials. I foolishly purchased a new car when my old one died. I was sick of paying $2,000+ a year on maintenance. I should have bought used and saved $10,000, but I’ll know for next time.

    My sister has fallen into most of the traps that you’ve described. She graduated from a great university with about $35,000 in student loan debt. She just purchased a $22,000 Honda Civic (which is awesome!) at 4.39% APR. My guess is 50+% of her monthly pay goes towards debt. At least she’s living at home, otherwise she’d be living in her car.

    1. Even a slightly used car shaves thousands off a purchase price. I had my heart set on a brand new car when my car was on its way out (since that was the only car I had ever driven since I was 16 year sold). When I started actually going to dealerships, however, the money aspect started to really freak me out. We ended up buying a 2014 and got a 0.99% APR during a used car event going on. It was such an upgrade from my previous car that it felt brand new anyway haha.

      The one good thing about the Honda Civic is it does hold its value well and it should last her a pretty long time, but ouch at the 4.39% APR. She should definitely take advantage of paying off as much of that debt as she can while she’s still home!!

  2. Great piece Courtney! Really like it. I wish I’d have had the opportunity to read stuff like this when I was your age. I’m a “Boomer” a late “Boomer,” which puts me in my 50’s.

    Yep, if I’d had info like this in my 20’s, I’d have made different decisions. Well, better late than never.

    I REALLY like your section, Choose Your College Wisely. I worked with another counselor who graduated from Baylor in Texas. Both her daughters graduated from Baylor. She told me that it was the biggest waste of money, but didn’t learn it until after both the daughters had graduated.

    I have a cousin who moved out of her parent’s house to go to a Junior College, miles away, before entering Texas A&M. She could have gone to the local community college, saving housing costs.

    Oh, she’s still not in Texas A&M and is dealing with college loans, because she’s no longer in college. :-O

    I’m big on the emergency fund, and not so much on budgets, as they can be over spent. I’m more focused on monitoring cash flow.

    I’m all over Personal Escrow Accounts. That’s for sure.

    I don’t just use cash. Actually, I hardly use cash. For the longest it was my debit card, then I Debitized my credit cards, as they have rewards. Debitize’s service dropped my bank, so I now have to “Debitize” my CC’s myself. It works.

    Great info, for shore. I’ll be looking for more.

    All the best! Shin

    1. Thanks for all the feedback, Shin!

      I’m sorry to hear that about your cousin. It truly is unfortunate because people are so young, misinformed and naive when being faced with the decision of where to go to college. Hindsight is always 20/20, as they say. I think the best thing is for generations who have already gone through it to make sure they inform their own children and help them make the right decision. Some of the more expensive colleges are definitely worth the cost, but the point is that people just need to do a little cost-benefit analysis beforehand and make sure they realize that those college bills will need to be paid at some point or another.

      I agree, budgets can be overspent. We use ours as an analysis of where our money is going each month and to help us monitor our cash flow. It just keeps us in check and I think it’s very helpful for those living paycheck to paycheck.

      I am a big proponent of using credit cards to get rewards for spending, as long as they are paid back as soon as they come due to avoid interest. Some people don’t have that type of self-control to charge only what they can afford, though.

  3. That’s a nice post Courtney! I can’t really relate to your “Choose your college wisely” because as I’m from Europe, prices are so much cheaper there when it comes to education … But since I’ve been living in Canada for 5 years I’ve seen so many friends who have made *not so good* choices regarding their college degree here and which now have way too much student loan debt. It’s definitely true that an expensive school is not necessarily a great school!

  4. I agree that millenials certainly have a herd mentality. Perhaps it’s social media that’s turning a lot of people into narcissists. Everyone is posting their latest outfit or purchase on Facebook (or vacation), and many people who can’t really afford that feel as if they have to spend money on keeping up with the latest trends as well.

  5. “Maintain a Budget”
    This is a big one for us too. So many places say to establish a budget, but if you keep going over it, what’s the point? We blew our grocery budget last weekend because we didn’t buy groceries for the past two weeks, and I don’t think we need anything major this week either, so we basically balanced out. In addition, we keep a Misc/Other line item in the budget because it’s expected that some kind of unexpected expense item will pop up during the course of the month.

    1. We have a miscellaneous line in our budget, as well. It’s a good way to plan for the unplanned expenses. We don’t even bother thinking of our budget in terms of weekly allotted amounts for things or per trips costs at the grocery store because we tend to be a little inconsistent. Sometimes we run out of the basics and need all that plus the food for the week or sometimes chicken is on sale and we’ll stock up. Whatever the case is, we just try to even out by the end of the month.

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