How to Stay Out of Debt. OK, You Are Finally Out of Debt. Now What?
written May 22, 2104 By Bill Stanley, MoneyCoachBill.org,
Getting over your head in debt was a mistake. Now that you have fixed that problem, what's next? First, look back and realize it is OK to make a mistake as long as you learn from that mistake; then resolve never to make that mistake again, ever. Now look forward. Make a commitment to yourself and your family to save up the money before you buy any consumer item. Never use borrowed money again to buy anything including a car - exception would be a house after you have saved 20% for the down payment. It means living on less, saving more, and having an Emergency Fund. (The importance of an Emergency Fund cannot be overemphasized.)
The question now is how can I buy things without going into debt? The answer is you buy things only with money you already have. That means no more credit cards (borrowed money), no more checks (which can be written for more than is in your account), no more borrowing money from your brother. You must follow a budget so you know the upper limit in each spending category.
Cash is the conventional, soon-to-be-old-fashioned way to buy things. If you don't have enough cash, you cannot buy it. Period. An easy and effective way to not spend more than you have allotted to each expense category is to put the designated amount of cash in a paper or virtual envelope which is labeled with the category name - rent, groceries, eating out, car payment, gas, etc. When the cash is gone, you must wait for it to be refilled the next month. In theory a debit card is supposed to limit spending to the amount of money in the account. To make sure a debit card purchase is rejected if there is insufficient money, you must "opt out" of the issuer's overdraft policy.
We are moving towards a cashless society and a society in which having your money in a brick and mortar bank is not necessary. Smart phones and computers and apps are changing the way we do our "banking." Here are some things to check out:
Ally Bank is a five-year old online bank with excellent customer support. There is no minimum to open an account and generally no fees. You can set up direct deposit, get a debit card and checks with the Money Market account, pay your bills (no charge), transfer money between Ally and your local bank. And there are unlimited deposits (including by smart phone) and ATM withdrawals. I have an Ally account (current 0.85% interest) connected to my local bank account (0.00% interest); I keep my Emergency Fund in Ally earning interest. This is a way to do family banking without the downside of borrowing and credit and debt.
The Bluebird Card. Wal-Mart and American Express have teamed up to offer a new prepaid card which is different than a credit or debit or bank card. The Bluebird card, unlike a debit card, is not linked to a checking account. There is no activation fee, no maintenance fee, no annual fee. You can open your account for free online or with a smart phone app. To add money, you can deposit some or all of your paycheck on the card with no fee. You can deposit checks on the card with a smart phone. Once you have money on the card, you use it like a debit card. The card works for no charge at ATM machines which accept Money Pass. And you also can use it for online bill pay. Once the money on the card is gone, you can't buy anything.
Square Cash - this is a way to email cash, free of charge, from one debit card to another (Master card or Visa). No login or password required; meant only for person-to-person transfers. Write an email to the person you are sending the money to, put in "cc" and on the subject line enter the amount you are sending. Explain the reason you are sending the money in the body of the email. First time use - Square Cash will email you the sender a link where you enter your debit card info. Square Cash verifies the debit card and checks that you have sufficient funds and sends an email to your addressee. The addressee will receive two emails, one from you and one from Square Cash saying you are sending the money. If the money is accepted and the addressee is a first time user, he/she will be asked to click on a link and enter debit card information. Once verified, the money shows up in the addressee's account in one or two days. $250 a week limit; $2500 if you provide more information on yourself.
Talk to your friends, there are many ways to buy things, pay the rent, and send money to people without going back into debt.
Resources
You Must Follow a Budget (email request for this article )
Ally - ally.com
Bluebird - bluebird.com