Smart Money Habits to Wipe Out Debt

Some people say that not all debt is bad. While that is true, the best thing is no debt at all.

With the exception of a mortgage, getting into any kind of debt is a stepping stone to perpetual debt. Once entered, it becomes increasingly difficult to pay off, and often leads to even greater financial strife.

Your income is never a certainty, so it's wise to be prepared with a savings buffer of six months' worth of earnings at all times. That is your guarantee that, should the worst happen, you have a cushion that will enable you to get back on track.

If you do have debt and want to pay it off a quickly as possible, the following smart money habits can enable you to wipe out that debt faster than if you were just casually paying the minimum monthly.

Habit 1: Overestimate your spending

When making purchases, train yourself to think that you are spending more than you actually are. For example, if spending $2.50 on a cup of coffee, instead of thinking you are spending $2, think of it like you're spending $3 - or better still, $5. That way you'll have more money left over than you expected and can put that extra money into savings or toward debt repayments.

Habit 2: Compound your payments

Just as some people compound their savings (i.e., increase the amount they save over time), do the same with repayments. Don't just pay the minimum. Every month, or every the months, increase the amount you repay by 5-10%. Doing this will help you clear the debt faster than you expected.

The caveat here is to make sure you don't further spend on credit. Cut up your credit cards if you have to!

Habit 3: Keep separate accounts

A superb way to manage your spending is keeping separate accounts for different types of spending. For example, have one account for all your travel expenses, such as fuel. Keep enough in the account to more than cover what you need on a monthly basis, and allow any excess to accumulate. That excess can then be used for unexpected car repairs as an alternative to dipping into your main savings pot.


Habit 4: Use cash where possible

One of the best methods of finance control is to use cash as much as you can. Cards make it difficult to keep track of all expenditures. However, with cash, you can visually see the money disappear, and hence, it makes you more conscious about spending. Take out $100 and see how long it lasts you. You'll be surprised by how quickly it vanishes. This is why older generations were and are better at money management: They came from a time of cash, not electric funds.

If you combine the points above and follow them rigorously, you will be able to ensure that your debt goes only one way - down - and that it will get wiped out quicker than you could have hoped.

Amit Sodha is a personal development blogger who writes about a variety of subjects including increasing personal wealth.