How to Avoid Debts and Stay Solvent

It's much, much easier to get into debt than it is to get out of it. If you’ve been borrowing more than you can pay back, or just want to avoid potentially crippling debt problems, here are a few of the most common warning signs that things are going south.

If you have credit cards, but can't remember the last time you made more than the minimum payments, or maxing out every card each month, or are avoiding opening letters in case they've been sent from creditors demanding money, you may have a serious problem. Other signs you're living beyond your means are a lack of disposable income, your bank account hitting zero way before you’re next due to be paid, or you’re consistently asking your employer for an advance.

However, all isn't lost. All you need to do is be proactive about managing your finances, and be honest with yourself about your financial situation. That's the first and most important step on the road to a debt-free existence. Here are a few more ideas.

Stay employed.

It's easier said than done in these challenging economic times to simply keep your job, but it's one of the 'easiest' ways to avoid getting into debt. While you may never be able to completely protect yourself from unemployment, as people lose jobs all the time for entirely unpredictable reasons, there are ways to limit the risks.

While at work, make sure to maintain good relationships with your employer and colleagues, and do your job to the best of your ability. This doesn't mean you should work harder or longer than your contract dictates (this sets a bad precedent), but that you should make sure your boss knows you're indispensable. You should also take every opportunity to develop your skills, undertake training, and make yourself even more valuable.

Credit control

As we move ever-closer to an entirely cashless society, it's getting easier and easier for us to take out huge amounts of credit. While this may be a useful tool for people who need a little help before their next paycheck, it's easy for things to spiral out of control. The average American household now owes more than $8,000.

If you have high credit card debt and are struggling to make repayments, the one thing you shouldn't do, no matter how straightforward it seems, is to take on more credit card debt. Yes, you may be able to pay a few things down in the short term, but it doesn't fix the underlying problem of why you got into the debt in the first place. You need to get to grips with why you need to take out credit and solve those issues, or your finances will stay precarious.

It also doesn't look great to lenders if you're constantly taking out cards, maxing out the limit, and then only making minimum payments. Instead, you need to keep what's known as your 'credit utilization' as low as possible. Generally, this means spending no more than a third of your total credit limit.

You can help yourself with this by paying with cash or a debit card whenever possible. If you're buying something and don't have the ready cash to pay for it, think about why that is before reaching for the credit card.Is there a good reason why you can't pay for it, like an unexpected expense? Or, are you living beyond your means? Do you even really need the item you're planning to buy? Is it worth adding to your debt?

If there's something you really need, but you'll need to put the purchase on a credit card, do your research to make sure you're getting the best deal possible. You should also keep a close eye on what purchases are being made on your credit card, and make sure you have a good idea of how much credit card debt you're accruing each month. That way, you won't be surprised when the bills come in and can better make sure you're able to pay.

Student debt

Student debt is one of the biggest financial hurdles facing young people in the United States, with tens of thousands of students every year beginning their careers already saddled with huge debt. But then, there are ways to improve the situation.

If you think far enough ahead, you can reduce the cost of going to college before you even graduate high school. Taking Advanced Placement (AP) classes gives you college credits, meaning you can reduce the amount of time you need to spend in college to finish your degree. This means less tuition, and a lower overall cost. Depending on how many AP classes you take, you could save as much as a year off college!

If you aren’t 100% sure what you’d like to do after college, and don’t feel a particular affinity for any one area of study, you might want to simply consider which degree is most likely to lead to a financially sound and fulfilling career. If you choose a more general major, you can also supplement it with a more career-focused minor subject.

Which degrees are the most 'hireable' changes all the time, but as a general rule, STEAM graduates are highly employable even straight out of college. Going straight into a secure job with a good salary and prospects for promotion is a great way to make sure you can pay down your student debt quickly.

You can also limit the amount of student debt you owe in the first place by researching all possible grant and scholarship options for the course of study you plan to pursue. No student loan company will do this for you. They want you to take out the loan, so you need to be smart and proactive. You may need to write several applications, and the process can be complicated, but it's worth it to avoid tens of thousands of dollars of unnecessary debt.