New Year No Debt: You Don't Have to Accept Debt As a Way of Life

When I was 22, a car salesman dismissed my concerns about taking on more debt to buy a Toyota Celica — even though it cost nearly as much as my annual salary.

“Debt’s the American way,” he told me with the authority of someone eyeing a commission.

I bought this guy’s shallow outlook — along with the pretty car, which I couldn’t afford. Six months later, I had to sell it. I learned my lesson about buying an unaffordable car, but it took me about 20 more years to figure out an even more important truth: The less debt I have weighing me down, the more options I have in my life.

For example, I was able to save several thousand dollars last year so I could leave a job I no longer enjoyed and work full-time as a freelance writer. My income fluctuates, and it also takes time to build a steady clientele, so I could never have made that move with credit card debt and car payments hanging over my head.

I have a mortgage and student loan debt. However, those are my only debts. That’s because I know that debt can become a prison, and I prefer life on the outside.

When you finally dig yourself out of debt, you’ll need to change your spending habits and attitude toward debt in order to prevent toppling right back into another burdensome debt dilemma later.

How do you do that? Here are my suggestions…

1. Stop looking at debt as a fact of life

I had to get student loans to go back to school and improve my life, and I had to take out a mortgage to buy my house. However, I no longer accept car payments as an option.

When my 2004 Toyota Matrix dies, I’ll pay cash for a newer, used car. Once I pay my house off, I’ll pay cash if I buy a new one.

I’d rather live within my means so I can spend my money to travel, go out to eat, and buy new clothes — all those things I couldn’t afford while paying off debt.

2. Don’t carry a credit card balance

If you’ve got some self-control, go ahead and charge a few things on your rewards card for cash back or travel. But don’t accept carrying a credit card balance as an illusory money management tool. Pay off your balance every month. You’ll never pay interest, and credit card debt will become a thing of the past.

3. Have an emergency savings fund

Even $1,000 can keep you from charging a car repair or unexpected veterinary bill on your card. Build that amount in savings and make a point of adding to it every payday. Set the lofty goal of saving enough to live on for six months with no other income.

Maybe you won’t save $20,000 right away, but even if you only save $6,000, that amount can still cover a lot of emergencies.

4. Take advantage of free money

If your employer matches your 401(k) contributions up to a certain amount, make sure you’re contributing enough to obtain that full match. Use your rewards credit card wisely for cash back and pay the full balance monthly.

5. Stop caring what anyone else thinks

Why should you care what your friends who are driving new cars, talking on pricey phones, and paying hundreds of dollars in credit card bills every month think of your used-car, no-payment life?

If someone looks down on you because you don’t have the newest gadget or the nicest house and aren’t willing to charge a group Alaskan cruise on your credit card, that person is shallow. Find better, smarter friends.

The key to staying out of debt is taking the option of credit off the table most of the time. Scrimp and save temporarily to buy a nice car that you can pay for with cash. Want new clothes? Set aside some money for a month or two and pay cash. In the big scheme of things, those are small sacrifices.

Remember, the need for instant gratification is what got you into debt trouble in the first place. This year, try waiting a little longer, saving for what you want, and placing all your focus on getting out of debt and staying out.

Staying out of debt may not be the American way, but living without all those bills crushing you down is where you’ll find the real land of the free.