The Average American spends almost 12% of everything they earn on interest. That’s right, 12%.

Debt can be a powerful tool for you to leverage the money of others for your own gain.

But, in a financially illiterate society, it’s best to avoid it, to stop yourself from making your financial situation any worse.

Here are 5 tips to help you avoid debt in 2024 and beyond.

Create An Emergency Fund

An emergency fund is a savings fund that you can access quickly, in case of an unexpected event or loss of income. It’s useful for things like:

• Broken down car

• Losing your job

• Medical bills

As you have access to money in a hurry.

It’s also a great thing to have as it helps you avoid debt, and the need to borrow money.

You can essentially borrow money from yourself, or your emergency fund.

Think of it as having your own mini bank loan, in case you ever need access to some quick money.

A lot of finance experts will suggest to build a fund of around 3–6 months of your monthly expenses, but it depends on how much you’re comfortable with.

By having an emergency fund, you can avoid debt and avoid having to pay interest on any money that you borrow from a lender.

Instead, you’re the one who can earn interest by keeping your fund in a high-yield savings account.

Avoid Living Paycheck to Paycheck

A lot of people find themselves getting into debt because they fail to generate disposable income, and are trapped in a cycle of living paycheck to paycheck.

This is a cycle you need to get out of ASAP, so you can start building disposable income, to put towards an emergency fund like we spoke about in the previous point.

Disposable income simply means what’s left of your income after all expenses are paid, and the problem for too many people, is that this number is way too close to zero.

As a result, if something bad was to happen, you’d have no money to cover it.

So… you’re forced to borrow money.

Again, the problem here is the interest rates you’ll end up paying

But, this is something you can avoid if you’re able to increase your disposable income, and save some money to avoid the need to get into debt.

Understand Compound Interest

In some occasions, a lot of people get into debt without the need to.

People choose it over spending their own money because they don’t understand how bad it can be for your finances.

There are a ton of hidden costs and fees that arise with borrowing money, and there’s one big reason why you should avoid debt at all costs.

It’s something we’ve spoken about earlier…

Interest.

When you borrow money, you borrow the money at a certain rate of interest, which means you have to pay more money back over time, and the longer you’re in debt for, the more you have to pay back.

Why? Because the interest compounds.

Assuming the rate of interest stays the same, when interest gets added to the initial sum, the initial sum grows, and by the time interest gets added again, it will be a greater number because the initial sum has increased.

Some lenders charge interest which compounds daily, meaning that the sum of the money you need to pay back grows every day.

This is especially bad if you’re only paying off the minimum amount, as you could find yourself paying back 2x, 3x, or even 5+x the amount you borrowed.

This is something you don’t want to be doing, especially if you can avoid it.

Only Spend What You Have

Debt is easily accessible nowadays, and this level of accessibility is only going to continue to increase, as the benefits of lending money is so great.

In fact, reports came out recently that the global debt now exceeds $307 trillion.

So, it’s important to make a habit of spending only the money you have, before debt becomes even more accessible.

Debt, in a way, is just as much a bad money habit as it is a means of providing yourself with extra money.

What I mean by this is that debt, more often than not, can be avoided.

Here’s the thing…

Improving your financial situation is at most 20% knowledge.

The other 80%, or even more, is down to your own habits and discipline.

So… set a rule for yourself that you can only buy something if you can afford it right now.

Spend Less Time on Social Media

This sounds crazy, but let me explain…

Certain social media platforms have become a cesspool for overinflated ideas of lifestyle and success…

• Expensive holidays every few months.

• Financed brand new cars depreciating in price.

• Designer clothes which are nothing more than social experiments.

A lot of people have found themselves stuck with the idea that you need all of these things to look successful, when in truth, they’re the exact things preventing you from building real wealth.

And for those who are trying to finance a lifestyle they can’t afford, a “useful” tool for them… is debt.

• Free money.

• Easy to access.

• Can pay it off over a long time period.

For those obsessed with this lifestyle, it’s a useful thing to have, but boy are they wrong. The problem is simple:

When people spend too much time on social media, they think they’re falling behind. So… what’s the solution to this?

Increased spending.

This used to be me, and I used to obsess over the idea of living a more extravagant lifestyle than I was worth.

What worked for me? Spending less time on social media, and spending less time worrying about trying to impress other people, who don’t even care.

So… stay in the real world, and be smart about the decisions you make.

Like Tyler Durden once said…

We work jobs we hate, we buy things we don’t want, to impress people we don’t like.

Don’t become this. Ask yourself… What do YOU want?

Thanks for reading! Be sure to subscribe (it’s free!) for more financial wisdom every week.