Debt can be a really heavy burden that affects your financial well-being, restricts your choices, and delay your ability to pursue your money goals.
However, by taking on a few practical strategies, you can break free from the cycle of debt and build a solid foundation for a debt-free future.
In this blog, we’re gonna explore some valuable tips to help you stay out of debt for good.
With the help of our super-smart AI money app, Cleo. (Don’t worry, the app is free, but you can still follow these steps without her help. She’ll just speed up the process on a couple steps.)
Here’s what we’re gonna cover:
- Create a realistic budget
- Build an emergency fund
- Prioritize debt repayment
- Avoid impulse buying
- Practice smart credit card usage
- Negotiate your rates
Let’s jump in.
How to stay out of debt | #1: Create a realistic budget
The first step towards avoiding debt is to create a realistic budget. We personally have been saying budgeting is sexy for years but we get it if you’re not inclined to agree. Budgeting is, however, a foundational building block for fixing your finances.
Here’s where Cleo comes in. Once you’ve downloaded the app for free, you’ll be asked to connect your main bank account. Don’t worry, you won’t be charged here - Cleo just analyzes the information this information to help you make better money decisions.
She’ll categorize your spending, so you can get a picture of your financial situation as a whole, and then you set spend limits so that you can cut back.
Here’s how it works:
Get connected 🤝 – download the app, sign up, and connect your main checking account. Select the Budget tab, then under Next Steps you’ll just need to tap on each icon to customize your Income, Bills and Spend Limits.
Income 💸 – select your latest paycheck(s) so Cleo knows when you get paid
Bills 👀 – add your bills and double-check to see if they’re right so they can be tracked correctly
Spend limit 🥡 – set a realistic spend limit
🔒 Once you’re done customizing your cute budget, you’ll unlock your ‘left to spend’ and ‘left per day’ amount. Cleo will call you out when you’re about to hit a spending limit.
By having a clear understanding of your financial situation, you can calculate how much money you can put towards debts and avoid overspending.
How to stay out of debt | #2: Build an emergency fund
One of the major causes of falling into debt is unexpected expenses. To protect yourself from these financial shocks, you’ll probably want to build an emergency fund. Aim to save at least three to six months' worth of living expenses in a separate account. Having an emergency fund acts as a safety net, so you can cover unforeseen costs without relying on credit cards or loans.
With Autosave, Cleo automatically stashes small amounts away for you each week so you don't even have to think about it. Then before you know it, you have hundreds saved up in your Cleo Wallet 💰
Cleo offers four different savehacks to help you save:
- Set & Forget: Pick an amount up to $24 and Cleo will set it aside each week for you
- Round Up: Cleo rounds up and sets aside the change from your spends each week
- Smart Save: Cleo uses ✨ magical algorithms ✨ to set aside money each week
- Swear Jar: Get "fined" when you spend at selected retailers (the fine goes into your Cleo Wallet each week)
To get started just type "autosave" to Cleo in the app.
How to stay out of debt | #3: Prioritize debt repayment
If you already have existing debt, it's crucial to prioritize its repayment. Create a debt repayment plan by listing your debts in order of interest rates or balances.
Research strategies like the snowball or avalanche method to pay off debts systematically, and check out the article our financial advisor Anna Yen wrote on debt repayment.
How to stay out of debt | #4: Avoid impulse buying
You know the feeling. You have every intention of sticking to your budget. And then you see a targeted ad and The Urge To Spend takes over you.
Impulse buying can push you towards debt. A simple tip to try is to wait for 24 hours before making a purchase on something that isn’t essential. But on top of this, Cleo will also call you out when you’re about to hit spend limits in a certain area. So you know if the purchase is gonna be out of budget, and take a second to ✨ self-reflect ✨
If you need a little tough love when it comes to the whole overspending thing, type “roast me” into the chat with Cleo. See what happens.
How to stay out of debt | #5: Practice smart credit card usage
Credit cards can be convenient tools (a little too convenient), but they can also be a slippery slope towards debt. If you’re struggling to pay off your balance each month, limit your credit card usage to essential purchases and be mindful of your overall credit utilization ratio.
How to stay out of debt | #6: Negotiate Lower Interest Rates
High-interest rates can seriously delay your progress in becoming debt-free. Reach out to your creditors and negotiate lower interest rates on your existing loans or credit cards.
You’d be surprised - many creditors are willing to work with you to create a more manageable repayment plan, especially if you have a good payment history. Lowering your interest rates can save you money and speed up your journey towards debt freedom.
Remember, paying off debt takes time and patience. You’ve got this. Cleo’s got your back.
Enjoy this post? Give it a share or send it along to a friend. You never know, it could make a big difference. Big love. Cleo 💙
*Cleo Plus is our subscription service, which offers eligible users cashback on your money, information on your credit score, and access to cash advances (“Cash Advance”). Advance amounts will vary based on eligibility. If you don’t want to subscribe, you can also apply for cash advance by contacting our customer service at firstname.lastname@example.org. To learn more about eligibility, repayment, and overall terms, please visit: meetcleo.com/terms.