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8 creative ways to stay debt-free

The temptation to spend after deprivation can be strong

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You've deleted thousands in credit card and loan balances. It took years of effort, sacrifice and hard work. Now that your statements finally read zero, your cards are open and the spending limits are high. A delicious sense of freedom is calling. Just a charge here and there won't hurt, right?

Careful, though. It's easy to get caught up in the debt cycle again, especially if you're itching to break free of that old restrictive budget. Here are tips from the experts to help you stay the course.

8 creative ways to stay debt-free 1. Remember the agony. Living in debt was dreadful, wasn't it? All that pressure and anxiety; maybe even physical ailments. Keep those painful memories alive, says Denise Winston, founder of Money Start Here, a financial education company in Bakersfield, Calif.

"Make a list of how awful you felt about being in debt on the outside of an envelope," says Winston. For example, you might have had low self-esteem, stress, insomnia, high blood pressure, relationship problems or lost productivity at work. Then place your credit cards inside and seal. When you're tempted to charge something you can't afford, you'll read your own words about how debt affected you -- and decide to stick to your spending limit.

2. Involve your friends. Sometimes you need the support of loved ones who know what you're trying to achieve. Therefore, says Winston, lean on them to keep you on the straight and narrow. "Make a pact with a friend and vow to call each other prior to any charge or temptation to charge." You can further the challenge by promising to share your credit reports with each other every six months or so.

Mind that you'll want friends who inspire, not depress you. Make sure they are those with positive attitudes.

3. Employ social networking. Shelagh Braley, CEO of My Life List, a social network for goal achievers, believes that making a public, online announcement can make all the difference in maintaining a financially healthy life.

She told me that having that [$82,000] credit card bill on her refrigerator reminds her daily that she never again wants to feel that out of control of her finances or her life."

-- Kristen Hagopian
Brilliant Frugal Living
"Use your social networks to declare your goal, ask for accountability and gather support and knowledge you need to get there!" says Braley. "Guaranteed, there are other people in your circle who share your desire to stay debt-free and are just waiting for a reason to commit. Then you can all do it together."

4. Broaden your budget. A perpetually tight financial belt is a problem, so loosen it up a notch before you rip it off. Mymoneymess.com personal finance blogger Chris Scully stresses the importance of constantly refining and revising a cash flow plan. If a budget isn't elastic, you'll eventually stray.

"Build in achievable goals, then rework your budget to include saving for it," says Scully. "Allot some sort of reward money for hitting monthly milestones on the way." By doing so, you'll prepare for long-term objectives while having enough funds to satisfy your desire for spending liberty.

5. Reduce temptation. If access to an abundance of credit is overly seductive, cut it down. Ronit Rogoszinski, a wealth adviser from Arch Financial Group, suggests abandoning excess credit accounts, leaving only two major cards.

"All the store cards that you opened to get the 10 percent discount for opening one up, close them," says Rogoszinski. "Some will say that this will hurt your credit score; personally and professionally, I don't care." Why? Remaining debt-free is not only vital to your net worth, it will actually benefit your credit rating. Thirty percent of a FICO score is based on how much debt you're carrying in relation to your credit limit, as opposed to length of credit history at 15 percent of the score.

6. Frame the ugliest bill you have. Keep a copy of the statement with the highest balance and display it. Kristen Hagopian, a motivational speaker and author of Brilliant Frugal Living, says this tip came from one of her students, who repaid $82,000 in five years.

"After putting herself into massive debt, she had a turnaround moment where she realized she was out of control, buckled down and never looked back," says Hagopian. To remain motivated, she keeps the five-year-old credit card bill (complete with "Balance Due: $82,000") on her refrigerator. "She told me that having that credit card bill on her refrigerator reminds her daily that she never again wants to feel that out of control of her finances or her life."

7. Refine your value system. If you really want to stay on budget, says Sally Palaian, a Bingham Farms, Mich.-based psychologist and author of "Spent: Break the Buying Obsession and Discover Your True Worth," you better first identify what makes you happy.

"Take the time to really think about what you want and why," says Palaian. Then add those things into your budget. "You'll get more pleasure out of spending money and be less likely to blow it on impulsive purchases or trying to keep up with the Joneses."

8. Save your old debt payments. HelloWallet.com founder Matt Fellowes says you can offset the budget blues by doing something super smart with the cash you had been sending your creditors. 

"Once you get rid of revolving credit card debt, take the money you were previously using to pay off debt each month and put it toward building up emergency savings," says Fellowes.  "Having extra money socked away for unexpected expenses is one of the most effective ways to stay out of debt."

As with dieting, once you've achieved your desired goal, you've got to keep the momentum going or you'll undo all that hard work. So the final tip: Enjoy your success so much that you refuse to let those balances edge up again.

See related: Credit card addiction: How to break the spending cycle, 7 ways credit card debt can be hazardous to your health, You are not your credit score: Credit and self-esteem, How social networking can help credit card debtors

Published: February 10, 2011



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