In Part 1 we touched on the reasons you get into debt. We are now going to look at the two different ways financial obligations have been incurred. There are two types of debt which we need to take a look at:

• Frivolous Spending

• Emergency Expenses

Let’s take a look at frivolous spending first. It is easier to say stop buying stuff you don’t need. There is often an underlying cause which needs to be addressed in these situations. As an example, you may have been part of a family who always got, most of the time, what they wanted and when they wanted it they were able to get it. You may find yourself doing the same when you are on your own.

Another example would be the complete opposite to this – you grew up in a family who didn’t have much, in fact you were always watching as your neighbors were able to buy special items and you vowed when you grew up you would never be in this position again. In fact you were going to have whatever you wanted, which is a normal response however some of you may have taken it too far and went overboard spending when you could not afford to.

Whichever situation best describes you (if any), the very first step you need to take is to promise yourself that you will only purchase the things which you need. Promise yourself and maybe even share this with a close friend, family, significant other so you will commit yourself to this important task.

The next thing you will need to do is address any underlying challenges you are being faced with.  Deep down, you know most of the purchases you make are superficial but the fact remains they make you feel great.

Ok, now we need to move on to the subject of emergency debt.

Are you able to predict or even prevent unexpected bad things from happening?

Your first reaction to that question is probably “Of course not”.  In fact, unless you have super-natural powers most of you are unable to predict, prevent these challenges that happen to us, however, you can reduce the amount of debt these situations will create.. the key is to have the means to handle these emergencies as they come up.

How is this possible?

One sure fired way to do this is to start an aggressive savings plan. By doing this you lessen the financial shock your budget will feel when an unexpected event comes up. You will often hear the financial experts recommend for you to put away 10% of your gross income and I would have to agree with this strategy.

The only thing you don’t hear them say is this strategy will not be easy. It takes discipline and commitment. Saving money can actually create you to feel a temporary financial pinch. The trick is to be consistent and soon enough it will be second nature to you.  It is like any change easy or challenging, after so many times it becomes a normal part of life.

A bit of discipline now makes it so much easier to enjoy life later. If by some stroke of luck you never are bothered by any of those major emergencies then you will appreciate having a nest egg later in your life.

One technique I have found takes very little upfront effort is taking coin change that you have on hand from breaking a bill and putting it into a sealed jar and only access it in an emergency.  I have personally used this technique to pay for my Christmas spending or if necessary car repairs.

In reality most of you go into debt as a result of emergency situations and frivolous spending. You never know what the future holds, therefore it is best to apply as many tips as you can get to fit your own situation.

There is only one thing you can do to minimize your debt and that is to only buy the things you have the cash on hand to buy right now. In fact, why not make this your new “daily” mantra.

“If I have to charge it – I can’t afford it”

Saying it to yourself is good however you need to do more, write it on a sticky note and attach it to any credit card that you have. Another idea is writing it on a sticky note and stick it to mirrors in your house. This way the message is constantly in your face – Pardon the pun.

It is unfortunate but it makes it very hard to give up the credit habit when most things in life require having a credit card. For example: Travel, reservations and account verification are a just a few. If you have no choice but to use your credit card for purchases most financial institutions give you a grace period of 20-25 days to payout the balance without incurring an interest charge. And remember – “If you have to charge it – You can’t afford it”.