A Foolproof Guide to Avoid Soul Crushing Debt

This guest post was contributed by Jane Sanders, who writes about debt management and other personal finance topics at

“A man in debt is so far a slave” – Ralph Waldo Emerson

One of the greatest hardships a person can face is being burdened by debt. In addition to paying off the original loan, interest (often at extremely high rates) continues to add to the total, making the ultimate pay off far higher than what was borrowed in the first place.

Having debt robs a person of freedom. They can’t leave a job they don’t like to pursue a new career, bad credit often prevents them from buying essentials like a home or a car, and it hangs over them for years, chipping away at the amount they can spend and save. It also creates stress, because someone with a great deal of debt is only one misfortune away from bankruptcy.

Fortunately, debt problems are completely avoidable. All it takes is an understanding of the seriousness of debt and some personal restraint.

Don’t Be an Idiot with Credit Cards

Everyone should repeat this mantra until it’s burned into their unconscious: Carrying a balance on your credit card is one of the stupidest things you can do. Credit card interest rates are extremely high, and the longer you wait to pay them off the more interest charges pile up. There is no excuse for using credit cards to buy something you don’t have the cash to pay for today.

Credit card companies love people dumb enough to make only the minimum payments because that’s how they make all their money. On top of that, they load their contracts with loopholes that allow them to jack up your rates at any time or hit you with charges for any number of small infractions.

I don’t believe there is any reason why a person has to have a credit card, but if you feel the need to have one anyway, you must avoid purchases you can’t afford and religiously pay off your balance before the end of each month. If you can do that, then you’ll have avoided one the most common causes of debt.

Do You REALLY Need that Degree?

Another leading cause of debt is student loans. While education can be a great investment that increases income over the course of your career, it can also be a gigantic waste of money.

If you want to avoid burdensome debt, it’s important to seriously consider the costs and benefits of attending a particular school. Is the degree going to improve your employment prospects? Is it going to help you start out in a higher paying position? What level of salary can you expect? What would you lose by attending a cheaper school (such as a state university)? Are you really sure you want a career in this field?

Whenever possible, you should look for cheaper alternatives and scholarships you might be eligible for. A top flight university looks great on a diploma, but if it puts you in debt for 20 years, the price might be too dear.

People also get themselves in trouble by changing their minds about a particular career path. I personally know more than one law school graduate that quickly decided that lawyering wasn’t for them. Unfortunately they couldn’t abandon the 6 figures of student debt quite so easily. This is also common among doctors.

The key point here is to avoid student debt as best you can, and when you do take it on, to be completely sure it’s an investment that will pay for itself.

Skip the Flashy House and Car

It’s trivially obvious, but still bears repeating. If you want to avoid debt, live within your means. Part of the reason people go astray is that it’s extremely tempting to spend. A future life with freedom from debt is intangible, but that sweet ride or the brand new condo are tangible things, tempting you with immediate gratification.

On top of that, there are salespeople doing everything in their power to persuade you. Keep in mind that these people do not care about you. All they care about is their sales commission and will say pretty much anything to get it. You should also ignore the spending habits of other people. Just because someone else is acting like an idiot is no reason to follow suit. You will never catch up to someone with more money by spending more than you should. If you want to buy luxuries then you need to work harder, not dig yourself a hole.

On large purchases you also need to be careful of shady lenders. Car dealerships make a large chunk of their profits by providing financing, generally at much higher rates than you could get through your bank. Mortgage brokers are also known for being extremely corrupt. They were a large cause of the financial crisis. If you start to hear terms like “adjustable rate” or “interest only” you should run for the door.

Keep Yourself Insured

Another common cause of debt is health problems. This generally happens when someone gets sick or injured and doesn’t have health insurance, or for some reason loses their coverage. It’s easy to let your coverage lapse if you become self employed or have a job that doesn’t provide it, so it’s important to understand what a tremendous risk that is. Medical problems cause 60% of all US bankruptcies.

Although you might think it makes sense to save money on premiums if you are young and in good health, health problems can happen to anyone, and they are frequently unforeseen and highly expensive.

Run From Short Term Debt Offers

This should be obvious, but any type of short term loan or cash advance you might be offered will come with ridiculous interest rates. These companies will often get celebrity endorsements and buy radio or TV ads touting the benefits of their loans: “All I had to do was fill out a form and they gave me $1000 cash”. What they don’t mention is that you’ll often be paying a 15% (or more) premium on whatever you borrow, due in a matter of weeks. Needless to say, this is a terrible deal for the borrower.

Stay the Path and Enjoy Your Freedom

Hopefully I haven’t overwhelmed you with too many instructions in this article, but the truth is that avoiding debt is mostly common sense and responsibility. These aren’t very sexy values, especially compared to promises of easy money that lenders offer. But unlike the those promises, they actually offer real rewards. By looking after your own best interests and keeping debt fueled expenditures under control, you can easily avoid soul crushing debt.

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