The 10 Commandments of Getting Debt-Free

Nobody wants to go into debt, and everyone in debt wants to get out of it. Avoiding or getting out of debt requires a lot of self control, patience and smart decision-making, but it doesn’t need to be complicated.

To help keep you on your path to being debt-free, we put together a set of simple rules you can use as your guide.

1. Thou shalt not buy things you cannot afford.

Overspending can quickly get out of control. It may start with carrying a small balance on your credit card, but when you can’t pay off that balance the next month and you add a little bit more to it, you’ll have more trouble catching up.

This is about more than a bad shopping habit or a tendency to eat out often. Taking out a loan to buy a car that’s beyond your budget or a home outside your price range is going to make it very difficult to manage your other expenses.

2. Thou shall pay yourself first.

Before figuring out how much money you have to spend, dedicate a portion of your earnings to savings. You may spend most of your life debt-free, but if you haven’t spent many years building a retirement fund, you may find it difficult to make ends meet or to be able to retire when you want to. Keeping a tighter budget now so you can save will be worth the financial and emotional security you’ll enjoy down the road.

3. Thou shall have an emergency fund.

Unexpected life events tend to be expensive. When the car breaks down, when you get sick, when you lose your job, you don’t want to resort to using credit cards to pay for everything you need. A good rule of thumb is to put away a little bit of money each month until you’ve saved enough to cover three to six months’ worth of your expenses, and only dip into the fund for a true emergency. As soon as you’ve used some of the money, make a plan to replace it so you’re prepared for the next unpleasant surprise.

4. Thou shall track your spending.

Know where your money goes, and you’ll be able to make smarter choices about where to spend it in the future. You may be surprised to learn how much of your paycheck goes toward food or entertainment, but once you’re aware of your spending habits, you can change them if need be.

5. Thou shalt not ignore debt collectors.

If you end up with a bill in collections, address the issue as soon as possible. Ask the collector to verify the debt, pay the sum if you can or negotiate for a settlement. If you ignore the debt, your creditor may sue you for it, which could result in a judgment on your credit report and further damage your credit score.

6. Thou shalt not take out high-interest loans.

If you have to finance something, shop around for the best interest rates. Keep in mind rewards and retail credit cards generally carry much higher APRs than standard cards, so if you need to carry a balance, make sure it’s on your lowest-rate card.

Taking out a cash advance or a payday loan may seem like an easy option when you’re in a pinch, but those debts are extremely expensive and difficult to repay.

7. Thou shall make payments on time.

Paying bills late or missing loan payments not only results in fees, it can seriously damage your credit score. Your payment history has the most influence on your credit score, so as long as you can maintain the habit of making payments on time, you’ll have established a good foundation for your credit.

8. Thou shall regularly check your credit.

Your credit can affect a variety of things, like how much you pay for insurance, if you can get a job or if you will be approved to rent an apartment. Checking your credit regularly helps you understand how your financial behavior affects your credit score, which in turn can help you improve it.

The better your credit score, the more likely you are to qualify for lower interest rates, which can save you a lot of money over time. You can use the lifetime cost of debt calculator to find out how much your credit will cost you in your lifetime.

Checking your credit reports and credit scores will also make it easier to spot identity theft, fraud or errors in your credit history, which you’ll want to address immediately. You can get two of your credit scores for free on Credit.com. You can also get your credit reports for free once a year from each of the major credit reporting agencies.

9. Thou shalt not co-sign for someone without knowing the risks.

Co-signing a loan or a lease isn’t inherently a bad decision, but it can be very risky to tie your credit to someone else’s financial behavior. If the person you co-sign for misses payments or stops paying all together, you’re on the hook for that loan. If you don’t take care of it, your credit score will take a hit. Co-sign with caution.

10. Thou shall pay credit card bills in full.

Carrying a balance isn’t necessarily bad for your credit (unless your balance is too close to your credit limit), but if you pay your balance every billing cycle, you won’t incur interest on your charges, and you won’t have credit card debt. If you need to finance a large purchase, consider using a low-interest card or a card with a 0% financing promotion. It’s easy to let credit card debt get out of control, but if you pay the balance every billing cycle, you don’t have to worry about that.