You know the feeling you get once you’ve paid off the last pound of debt you owe? It’s incredible, isn’t it? 

Being in debt takes a toll on your mental and physical health, which can significantly impact your personal and professional life.  

As a result, it’s essential to actively work towards repaying your loans and debt, whether it is payday loans, credit card bills or mortgages. Non-payment leads to more interest, fines and in the worst cases, legal action can be taken against you. 

So, let us begin by understanding why a loan is taken out in the first place and how you manage your financial health after recovering from debt.  

Why Do People Borrow Money? 

Taking out loans can help people make big purchases. This can include everything from buying a home to a car. You can even take loans for home repairs or even for wedding preparations. Student loans have also become extremely common among the youth to fund their higher education.  

Sometimes, smaller amounts of money are taken as debt to establish a positive credit score. Paying your debt on time improves your credit score, making it easier to obtain loans even at a comparatively lower rate.  

Credit card debt has become extremely common in today’s economy. You can accumulate credit card debt by spending on clothes, shoes, eating out, or even buying flight tickets for your holiday. 

However, with proper money management, budgeting and financial literacy you can ensure you live a debt-free life. Let us look at a few strategies to maintain a debt-free life once you have cleared out all your dues and loans. 

3 Tips To Maintain Your Financial Health 

So, now that you have finally paid back your debt, how do you ensure you never land in that same position again?  

Financial Literacy 

Financial literacy is important to lead a debt-free life. When you understand concepts like APR (annual percentage rate), debt tenure, early repayment fees, and how your credit score impacts your loan eligibility, you can make smarter decisions. Moreover, make sure you speak to different lenders before taking a loan, as this will help you to find the best rates and deals.  

When you understand how loans work, you are better placed to protect yourself from ongoing financial scams. For instance, when you are neck-deep in debt, you become an easy target for predatory lenders. However, with an understanding of how genuine lenders work, you can easily avoid such scams. 

Whether you’re looking for a mortgage or a payday loan, it’s important to borrow from an FCA-certified, genuine payday loan direct lender and not fall prey to fake websites. If you’re unsure, check the FCA website to see if your lender is regulated or not.  

Budgeting 

Financial planning goes a long way in ensuring you live a debt-free life. The best way to budget is to follow the 50-30-20 method. In this budgeting strategy, you allocate 50% of your income towards your necessities like rent or mortgage, groceries and utilities. 20% of your income must go towards saving or investing for your future. The remaining 30% is usually kept aside for your wants and includes anything from shopping, takeaway or holidays.  

It’s important to understand what to prioritise and how to save money most efficiently. Some expenses might feel small but when they add up it can be a significant amount. Similarly, it is easy to subscribe to multiple streaming platforms, however, if you are not watching all of them, it’s best to cancel the subscriptions. 

Saving, Investing and Creating an Emergency Fund 

It is crucial to save and invest for your future. Financial planning involves creating provisions for your old age. The best way to do this is to invest in pension funds, bonds, real estate or the stock market. Speaking with a financial advisor or portfolio manager will help you make the right investment choice.  

Diversification in your investment will help you to minimise risk and avoid losing your money, even in an uncertain economic state.  

An emergency fund is also a great way to safeguard yourself if something unfortunate happens. An emergency fund is three to six months of living expenses in an easily accessible savings account. For example, if you lose your job, the emergency fund will help you sustain yourself until you land the next job.  

Wrapping Up 

Debt in a moderate and controlled manner might prove to be beneficial. However, uncontrolled debt can become problematic, especially if you are unable to pay back or the amount you owe becomes more than you earn.  

Such unpleasant situations are easy to avoid if you plan and budget properly, save and invest for your future and improve your financial knowledge to make informed decisions. 

This is a collaborative post.