3 Moves You Can Make Now to Avoid Debt in 2023

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It’s really worth doing them all.

Important points

  • There’s reason to believe that carrying debt will get even more expensive in the new year.
  • A few important steps now could help you get out of debt later.
  • Adding money to your emergency fund, sticking to a budget, and cutting non-essential expenses can all help keep you out of debt next year.

Being in debt can be stressful no matter what. But it could be an exceptionally stressful thing in 2023.

The reason? The Federal Reserve has hiked interest rates to slow the pace of inflation. So if you have debt with a variable interest rate, like a credit card balance, your rate could skyrocket in 2023, costing you more money as a result. If you take on credit card debt for the first time in 2023, you might be paying a lot of interest on it from the start.

That’s why it’s best to avoid debt in the new year. And these three steps over the coming weeks could help keep your head clear.

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1. Increase your emergency fund

People don’t usually get into debt because they’ve spent money recklessly, but because they’re hit by an unplanned expense and don’t have the money in savings to cover it. If you’re looking to avoid debt in 2023, one of the best ways to go about it is to build up a solid emergency fund when it could use a boost.

As a general rule, your emergency fund should have enough cash to cover essential living expenses for at least three full months — things like rent, groceries, car payments, and utility bills. So let’s say you spend $2,500 a month on essential living expenses but only have $4,000 in savings. while I have some Cash in the bank is certainly better than none, which should prompt you to work on increasing your cash reserves as much as possible.

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2. Get a budget

Sticking to a budget can help you make wiser spending decisions — and avoid a scenario where you find yourself in debt. One of the easiest ways to create a budget is to look through recent bank and credit card statements, see what your various bills include and what they cost, and then list them all in a spreadsheet.

From there, you should compare your total spend to your take-home salary and make sure all the numbers add up. Committing to not exceeding in any single spending category could help you stay out of debt.

Related: Best budgeting apps

3. Drop expenses that don’t do much for you

Maybe you’re paying for a streaming service that you rarely use. Or maybe you enjoy going to the gym but just as much enjoy exercising while jogging. The more unnecessary expenses you offload, the more money you can free up for your savings — and the more likely you’ll be managing additional bills that randomly come your way.

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Being in debt could be a particularly costly proposition in 2023. If that’s not a scenario you want to deal with, pump more money into your savings, stick to your budget, and make sure you’re not spending money on expenses that aren’t. t really do much to improve your quality of life.

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