Financial freedom is your gateway to a secure future. But debt has become an unwelcome reality for many Americans. Credit card debt, student loans, and car loans have become a normal part of life, and according to the Federal Reserve of New York, U.S. household debt is at an all-time high of $17.05 trillion.
Poor money management and lack of financial literacy have left many Americans in debt, unable to break free. However, with smart budgeting and planning, you can avoid debt and build a strong foundation for financial stability.
This expert guide covers seven effective ways to achieve financial freedom and break free from the chains of debt — including how Accrue Savings can help you hit your financial goals.
Before embarking on your debt-free journey, you must clearly understand your income, expenses, debts, and assets. Assess your financial well-being by looking at the big picture and understanding how much you spend in relation to your income.
Once you understand your financial situation, create a monthly expense budget that works for you. Budgets allow you to track spending and manage your cash flow systematically. A budget should be realistic, flexible, and tailored to your lifestyle.
The 50/30/20 guideline is a great way to get started. This ensures that 50% of your monthly income goes toward necessities, 30% toward lifestyle and discretionary spending, and 20% toward savings and debt repayment. The goal is to cover your expenses from income and end each month with some money left over.
An emergency fund serves as a safety net that you can tap into during unexpected life events like job loss, medical bills, car repairs, etc. Having an emergency fund of at least three to six months' worth of living expenses can help prevent you from accumulating more debt and ensure your financial security during difficult times.
To set up an emergency fund, you can:
- Save a portion of your income.
- Automate your savings to ensure you are setting aside money each month.
- Invest your emergency funds in low-risk investments such as savings accounts or money market funds.
Keep your emergency fund in a separate, liquid account, such as a checking or savings account, so you can easily access it when needed. With an emergency fund, you can minimize the credit card debt and payday loans you may need to cover unexpected costs.
Mindful spending means only purchasing what you need and avoiding overspending. Evaluate your purchases and ask yourself whether it’s truly necessary or if you’re just succumbing to temptation.
Create a budget to track your personal finances to ensure you make the best use of your money. Additionally, challenge yourself to find more affordable and creative alternatives to your desired items. Distinguish between needs and wants to develop smart spending habits.
We all need food, a roof over our heads, and clothing for the cold weather. But do we need to buy the newest smartphone or designer jeans? Learning where and when to draw the line between wants and needs is essential for avoiding debt.
When it comes to needs, focus on quality over quantity. Instead of filling up your home with cheap clutter, invest in a few good-quality items that will last longer. For instance, instead of buying a new pair of sneakers every other month, buy a good quality pair that will last you for years.
Try incorporating a "waiting period" of at least 30 days before making big purchases. Take time to determine if the purchase is something you need or want. This small change can make a big difference in your financial life.
Credit cards can be both a blessing and a curse. On the one hand, they provide convenience and build credit scores when used responsibly. On the other hand, high interest rates and fees can lead to debt.
To avoid the downfalls of credit card debt, you should pay off your balance in full every period. This will help you maintain a good credit score, avoid interest charges and late payment fees, and keep your finances on track.
Automatic payments are an easy way to ensure you make the minimum payments on time each period. When you fail to pay off your balance in full, the remaining balance will be subject to interest and late fees.
These can quickly add up, resulting in serious financial hardship. If you're having difficulty making payments, you can contact your credit card company and ask about a payment plan. They may be willing to negotiate a lower interest rate or offer debt relief.
Additionally, consider switching to a credit card with a low annual percentage rate (APR). Credit cards with 0% APR promotional periods are also available. You can set reminders to pay your credit card bills on time and in full every month.
Buy now, pay later (BNPL) deals are alluring; they allow you to purchase items without having to pay right away. You pay 25% upfront and the remaining 75% in three to six monthly payments. While this may seem like a great way to buy something you can't afford, the reality is that BNPL deals can be a slippery slope into debt.
Not only will you pay extra interest and late fees if you fail to make the payments in the allotted time frame, but the purchasing process can become addicting. This payment option encourages you to buy now and worry about it later, creating a false sense of wealth. The best way to avoid debt while indulging in retail therapy is to save up and pay for items with a debit card or cash.
The more credit cards you own, the greater the temptation to spend money you don't have. When you have multiple cards with high credit limits, it's easy to forget that you're still spending real money and racking up real debt.
The high interest rate of credit cards can make it challenging to pay off your balance on time, hence the need for a debt consolidation loan. A debt consolidation loan allows you to pay off multiple debts with a single loan.
Multiple credit cards can also confuse you when managing your finances and tracking payments. The ideal number of credit cards to have is one or two. This will help you keep track of your spending, maintain a good credit score, and prevent excessive debt accumulation.
But if you already have too many cards, no need to panic. You can make moves to reduce your credit card count without hurting your credit score. Consider paying off your oldest credit card, then only keeping it open for recurring charges (like subscriptions) and paying it off in full each month.
You can also set up automatic payments on your existing cards to reduce your chances of being charged interest for carrying a balance from month to month.
Accrue Savings is an excellent option for making a large purchase, like furniture, jewelry, or travel. We help you gradually save some of your income as you work toward a certain savings goal. Instead of taking out a loan or paying with a credit card, you use your money to purchase. This will help you avoid debt and build up your savings for future financial goals.
Accrue’s partnerships with dozens of leading brands like CheapOair, Smile Direct Club, and Casper make it even easier to save for the things you want. Set up a free account, choose your goal, select a payment plan, and then watch your savings grow. As you begin to save, our partner brands will contribute up to 20% of your goal when you shop with them.
Saving with Accrue is an easy and effective way to build financial stability while avoiding debt. With Accrue Savings, you can finally make the purchase you've been dreaming about without falling into debt.
Start saving with Accrue Savings
Practicing self-discipline in your spending habits can be challenging, which is why Accrue Savings is a great tool to help you stay on top of your financial goals.
Accrue helps you to build up your savings on your terms and helps you make important purchases — without debt. You can also reap the benefits of additional rewards on partnering brands.
Sign up now, shop with our partners, and get more value out of your savings!