How to Avoid Lifestyle Creep and a Hamster Wheel of Debt

When you owe money and are dreaming of debt relief, it can sometimes feel like you'll never be debt-free. Once you've finally paid off that last debt, though, the feeling can be pretty amazing. Paying off your creditors requires hard work. You should be proud of yourself once you've done it. 

The big question, though, is what happens next? Now that you've erased debt from your life, you don't want to fall back into that trap again. Unfortunately, it's sometimes all too easy to start relying on credit again—and to find yourself owing more money as life events happen.

You want to avoid finding yourself stuck on a hamster wheel where you repeatedly get into and out of debt without ever making real progress. Happily, there are a few simple steps you can take. Here's what you can do. 

Create a Realistic Budget

Debt happens when you spend more than you earn. So a good way to avoid taking on new debt is to create a budget. A well-crafted budget lets you decide where each dollar needs to go and helps you spend within your means.

Budgets don't limit your spending; instead, they help you set spending and savings priorities. For example, if you really enjoy eating out, you can choose to give up other expenses so you don't rely on debt to pay for lunch.

Your budget needs to be realistic, though. If it's not, chances are good you'll start borrowing to cover the shortfall. For example, if you budget $200 per month for groceries for a family of four, you'll have to find more money to pay for food when it turns out $200 isn't enough.

To make sure your budget is something you can actually follow, track your spending for a few weeks. Once you see how much expenses like food, entertainment, and utilities cost, you can set realistic limits that you can actually live with over the long term.

Prepare for Emergency Expenses

Unexpected costs are a big reason why people end up back in debt once they have gotten out of it. Start working on building an emergency fund to limit your risk of debt from unexpected expenses.

Ideally, your emergency fund will have three to six months of living expenses. It's going to take you time to build up to that. If you can, try to tighten your budget for a few months. Avoid unnecessary expenses until you have at least a few months of emergency money saved up.

In fact, if you were living on a strict budget to repay debt, keep doing that for a little while longer. And if you get windfalls like a tax refund, put that money toward your emergency fund as well. 

It can be really discouraging to get out of debt, have an emergency pop up, and end up owing money again. Having money ready to cover surprise costs could make this less likely to happen to you. Once you have your emergency money saved, you can allow yourself a little more fun in your budget as long as you can do so without having to borrow.

Save Up for Large Purchases 

The next big thing you need to plan for to avoid getting sucked back into debt is the fact that you'll probably need (or want) to cover some large expenses at some point. For example, you might want to go on a big vacation now that you're out of debt. Or you may need new furniture, or your kids may want to join a travel sports team.

If you just say yes to these costs but your salary can't cover them, you'll find yourself owing money again. You don't want to do that—but you also don't want to deprive yourself either. Instead, make a list of the big things you want to spend money on. Then, build them into your budget so you can save for them over time.

For example, if you want to take a big $5,000 family vacation next year, figure out how many months until your vacation. Then, see how much you must save each month to pay for it in cash. If you're 10 months away, rework your budget so you can save $500 per month toward the vacation.

If your savings goal is unrealistic, you may need to make cuts elsewhere or scale down your expectations. The key is to understand what you want, see if you can make it happen without debt, and tweak things if you can't. 

Give Up Credit Cards if You Can't Trust Yourself

Finally, if you can't trust yourself not to charge too much and worry you'll find yourself in need of credit card debt relief in the future, you can simply stop using credit altogether. You should do this if you aren't sure you can limit your credit card use and only charge purchases you can pay for in full.

If you suspect you may end up making only minimum payments, it's best to remove the temptation entirely. It's harder to live above your means if you don't have a way to borrow.

You may not want to actually close any card accounts that you have open. Doing so could cause your credit score to take a hit. But you can keep the card account active by charging something small and recurring, like a streaming service, and setting up automatic payments each month. Then, put the card away somewhere so you aren't tempted to use it. 

By following these tips, you could stay debt-free for the long term, confident that you can live within your means and build a secure financial future.