Avoiding Debt

For the purpose of this learning resource, “debt” means owing money, and “avoiding debt” refers to either managing debts that you currently owe or not getting into debt so that you are financially stable.


There are many reasons, both intentional and unintentional, why people get into debt. Here are some of those reasons:

  • Income/Expense Ratio.
    • Spending more money than what is earned.
  • Divorce. 
    • Attorney fees, court fees, etc.
  • Unemployment or Underemployment.
    • No job.
    • Job that doesn’t provide enough hours.
    • Job that doesn’t provide enough pay.
  • College/Student Loans.
    • Not following payment plan can lead to greater debt due to compound interest.
  • Housing Loans.
    • Not following payment plan can lead to greater debt due to compound interest.
  • Car Loans.
    • Not following payment plan can lead to greater debt due to compound interest.
  • Lack Of Or No Savings.
    • Can lead to making purchases on a credit card, which, if not paid in full, can lead to greater debt due to compound interest.
  • Lack Of Money Management.
    • No budget in place.
    • Not following the budget.
    • Can be addictive.
  • Credit Card Debt.
    • Not paying monthly credit card bill in full leads to greater debt due to compound interest.
  • Medical Debt.
    • Unable to afford medical bills.
    • May be due to lack of health insurance.
    • Can occur due to major illness or accident.
  • Partner Spending.
    • Debt occurs due to partner’s debt or partner creating new shared (couple, spousal) debt.
  • Spending Ahead Of Time.
    • Spending money that you think you’re going to get before you actually have it, such as tax return money, and then not receiving the money or receiving an amount lower than expected.
  • Bad Investments.
    • Real estate, stock, etc. investments losing money.
  • Lack Of Insurance.
    • Expensive accidents occurring without insurance, such as:
      • Bodily injury.
      • Major illness.
      • Natural disaster (storms destroying property, etc.).
      • House fire.
      • Car accident.


Definition: Compound Interest.

According to Investopedia.com, “Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.”

Here’s an example:

Loan of $1,000.00 for 5 years with 10% interest.           

Your initial loan of $1,000.00 would actually end up costing you $1,610.51!

           Year    Loan At Start          Interest     Loan At End
     0 (Present)        $1,000.00 ($1,000.00 x 10%)


             1        $1,100.00 ($1,100.00 x 10%)


             2        $1,210.00 ($1,210.00 x 10%)


             3        $1,331.00 ($1,331.00 x 10%)


             4       $1,464.10 ($1,464.00 x 10%)


             5        $1,610.51     ………………     ………………



There are numerous tips that you can follow to manage and avoid debt. Here are a few of those tips:

  • Create a budget and stick to it.
  • Have an emergency fund.
    • This is a savings account that is used strictly for emergencies such as major car repairs or medical expenses.
  • Charge what you can afford.
    • Only charge onto a credit card what you can afford to pay off when your statement bill is due.
  • Make all payments in full and on time each month.
    • Mortgage.
    • Rent. 
    • Cell phone.
    • Car insurance.
    • Home or renter’s insurance.
    • Utilities (electricity, water, etc.).
    • Cable.
    • Internet.
    • Student loans.
    • Credit card.
  • Stay away from cash advances.
  • Avoid loaning people money.
  • Limit the number of credit cards you have.
  • Refrain from impulse purchases.
    • Impulse purchases are purchases that you make on a whim without giving them much thought. These may commonly occur at the checkout line at the grocery store, and while they may be small, they add up over time.
      • Ex: If you make a $10.00 impulse purchase once a week for a year, that adds up to $520.00 extra spending over the course of that year!
    • If you must take a loan, shop around for the lowest interest rate.
      • Think of our compound interest example above. The lower the interest rate, the less money you will have to pay back for taking the loan.
    • Be wary of “buy now, pay later” purchases.
      • If you can’t make your payments on time, you may end up paying a significant amount more for the purchase due to compound interest.
    • To avoid student loan debt, apply for grants and scholarships.
    • Stay employed!
      • Even temporary times of unemployment can cause increased debt and financial vulnerability.
      • Secure your place at work by making yourself a valuable employee.
      • Make secure, valuable professional connections who can help you stay employed.
    • Consider launching your own business.
      • Please consult professionals for advice in this area. You may consider starting with your local Small Business Association (SBA).


In addition to this information, you may want to check out Budgeting that’s also located under Finance to help yourself develop and stick to a budget to avoid debt.

Additional Resource: There is a program by Dave Ramsey called Financial Peace University that many use to help themselves get out of debt and become financially stable.



Do your own research! No Longer Silenced Movement encourages you to do your own research about topics of your interest in order to formulate your own educated opinion.