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Did you get out of debt once and for all in 2010? Would you like to stay that way in 2011? Have you always struggled with staying out of debt, but now you see the end of the tunnel — are close to paying off your credit cards — and you want to stay that way?
Believe it or not, it’s not as hard as you think, and it begins with one simple rule:
“Don’t spend more money than you bring in.”
Of course, one very easy way to stay out of debt is simply don’t use your credit cards at all. But we live in the real world, where mortgage and car payments come due, and we need food, and gas for our cars … and sometimes, staying away from credit cards completely is just not practical for many people.
Besides, if you don’t use credit cards at all, you may be giving up a lot of free cash that come as part of fantastic rewards programs with cards from Discover, Chase and Citi.
So how can you safely and responsibly use your credit cards while staying debt-free in 2011? Here are a few tips and tricks that work.
The idea of a budget brings us back to that first simple rule: Don’t spend more money than you have available. But there’s no way to know how much money you have available without a budget.
Creating a budget is actually quite simple. First, write down all your expenses. Estimate up for variable expenses (like gas for your car), and set a reasonable amount you can live with for things like food and entertainment. You can always cut corners on your food and entertainment budget, but if you get an electric bill that’s higher than expected, you still have to pay it. If you truly have no idea how much you’re spending each week or month, track your spending for a few weeks to get a good idea. The results may surprise you, and you’ll find you can cut your expenses easily in a few ways.
Then, write down your income. Again, if this varies, calculate a worst case scenario. You can always treat yourself with the overage, or put it into a savings account.
Speaking of savings, set aside 10% to “pay yourself first,” as part of your budget. Do this until you have at least 3 months worth of living expenses in a savings account; then you can continue to save 10% and put it toward retirement or anything you want! A savings account is another great way to stay out of debt in 2011. Rather than putting your next vacation on credit card, set aside money with each paycheck to pay for your trip.
Once you have a budget, you’ll know how much you can afford to charge on your credit cards each month, and still be able to pay off without interest. A budget can also help you manage purchases on 0% credit cards. Determine how much you have to pay each month so you can pay off your purchase before the 0% intro APR is over, and then make those consistent payments to stay out of debt.
American Express offers fabulous rewards, especially for small business owners and frequent travelers. If you have good-to-excellent credit (I started receiving pre-approved offers for a green American Express card when my credit score hit 680 or so), apply for an American Express and use that instead of your credit cards. There’s no pre-set spending limit, but the entire balance is due monthly. This is one way to make sure debt won’t sneak up on you in 2011.
One way to be sure you’re only using a credit card when you have the cash to pay for your purchase is to charge something in a store, and then pay it off immediately in the store (if you’re using a store card), or online through your smartphone. Technology is a great tool to help us stay on top of our finances, and making credit card payments quickly and easily — as soon as you think of it — is just one benefit.
Staying debt-free in 2011 means never paying finance charges — or late fees. Keep track of due dates by whatever means you prefer — reminders in your email calendar, on your smartphone, or through a budgeting program like CreditSesame.com or Mint.com. We’ve tried out both these programs, and they are effective budgeting tools. Which brings us to our fourth tip …