As of 2023 Americans owe more than $1 trillion in credit card debt, but being proactive and completing four key steps can help consumers avoid credit card debt. Joining PennyWise this week is personal finance writer at WalletHub, Chip Lupo, to describe in detail how to accomplish the four steps.

Read more on WalletHub here!

About this program

Nat Cardona is host of PennyWise as well as Lee Enterprise's true-crime podcast Late Edition: Crime Beat Chronicles. Lee Enterprises produces many national, regional and sports podcasts. Learn more here.

Chip Lupo is a personal finance writer for WalletHub.com, specializing in credit cards, credit reports and scores, and debt management, and has worked remotely from the Columbia, SC area since joining the WalletHub team in 2018. Chip manages all the finances in his household and has become adept at employing strategies to minimize the family’s debt.

Episode transcript

Note: The following transcript was created by Adobe Premiere and may contain misspellings and other inaccuracies as it was generated automatically:

Welcome to PennyWise, a Lee Enterprises Podcast. I'm Ambre Moton the producer and editor of the show, filling in for Nat Cardona. Americans collectively owe more than $1 trillion in just credit card debt as of 2023. So it's fair to say that staying out of debt is a challenge for many people. Luckily today, our friends at Wallet Hub published a story called How to Stay Out of Debt, Tips, Strategies and more.

To help with that, I'm being joined by Chip Lupo of Wallet Hub to go over some tips for staying out of debt. Chip, according to this article, there are four main steps to staying out of debt. The first step is to cover all of your bases. What exactly does that mean? Well, it's a tiered process here. And start off.

It's important to note that these rules are these tips. While they primarily apply to people who have spent months or years trying to get out of debt, they're also very helpful to someone starting out managing finances for the first time to avoid getting into debt in the first place. So there's just four basic steps and we'll expand on these as we go.

You want to build an emergency fund? That's that's the first step. You want to set a budget very important and stick to it. What you set your budget develop a routine which involves checking your finances to make sure you're staying on budget. And then finally, most important, avoid repeating any past mistakes that got you into debt. That's definitely a good one.

And then you said developing a routine. What can you. Can you just kind of explain that a little bit more? Well, developing a routine is just basic habits. Once you once you set a budget, you want to make savings, a recurring expense. Most people put savings on the back end when it comes to prioritizing. You want to make that part of your part of your budget the same as your mortgage, the car payments, utility bills, a certain amount every week, every month, according to your finances.

But make sure that's built into your budget. That's part of the one step of the routine. You also want to review your monthly bills regularly, particularly those that fluctuate power bills, utility bills. Check your cable bills regularly or phone bills for any, you know, rates go up, things like that. So if you want to stay on top of that, because sometimes price hikes can make a major change to your budget, you also want to keep track of any savings investment accounts, review your bank statements regularly, check for fees, check for anything, any hidden costs.

Look for any any types of frauds or any errors in your account. So you want to stay on top of that. You also want to employ what we call the island approach to credit card spending, which means using different credit cards for specific expenses. If you have a gas credit card, you want to use that to track you fuel purchases every month.

That way, they're isolated. They're itemized on one statement. And then you can adjust your budget accordingly. Now, of course, that approach works best if you plan on paying your credit card bill in full every month, which is something you should be doing anyway in order to stay at it. You also. Okay, so the next thing in this article, it says that you should activate, safeguard or safeguard just it's more like protecting your investments.

You want to sign up for credit monitoring checks, anything that checks for identity theft, anything along those lines that will more or less keep your mind, your ease, particularly if you're one of these people who's been in debt and the last thing you want is some identity theft or someone racking up loans on your on your credit. Things like that.

That's what we mean by talking about safeguards in your in your banks and your credit card companies. They have a vested interest in fraud prevention, too. So check with them. A lot of times you can get free services, wallet, help has three credit monitoring services shop around and find a deal that works best for you. When you talk about shopping around specifically related to credit monitoring systems, you know what quality should be looking for, what you would want something ideally something that is 24 seven.

Weekends, holidays, any time. Fraud is 24% and there's no timeline when it comes to fraud. So you would want a service that would be able to provide that around the clock. Are there any other things that people struggling with debt or, you know, struggling to stay out of debt should really do? Sure. Building an emergency fund that's probably that should be your first step because you would want to have a backup plan if you lose your job, if you have an injury to prevent you from working or any other unexpected costs that would help you avoid falling back into debt once you pay off what you owe.

And ideally, you would want to try to have at least six months of salary saved up. That's usually recommended, but that can be more or less depending on your budgets. Secondly, the budget you want to set a budget and stick to it. Basically, that means and it can be as simple or as elaborate as you want it to be, but it boils down to writing down all of your expenses and how much money you're bringing in, and it allows you to track where your money is going and identifying the sources of any overspending that could be.

Subscription services. You sign up for a trial, 14 day trial, and then a year later you're still being charged for something you may not even be using anymore. Next up is that every month you would want to divvy up how much you want to put towards the essential expenses savings and for one case or any kind of retirement plan.

Do that first to determine how much you have left at the end of the month for any non-essential expenses for dining, entertainment, those types of things. And that way. So when the time comes, if you have to make any major spending cuts or a change in your financial situation, you'll know exactly what needs to go, what has to stay, what has to go.

Yeah, all of those sound, you know, pretty, I guess, common sense. And there's no way, no better way to do that than to put it down on paper if you see it in front of you, especially in this electronic credit card, you don't see the money coming in knowing you have a spreadsheet or a notebook or however you want to track your budget.

You see it right in front of you. So you know immediately where every penny of your money is going. That's definitely an awesome tip. I just bought a new notebook specifically for tracking all of my expenses because I feel like you said, with everything being electronic, paying my bills, my rent, everything electronic, it's sometimes hard to see where everything's going out compared to what's coming in.

Right. And again, as I mentioned earlier, it can be as simple or as elaborate. We talked about developing a routine earlier. So what we're going to do now is avoiding repeating any prior mistakes. You have to understand how you got into debt in the first place and detail onto that. You make a plan to to resist the temptation to overspend.

Treat yourself once in a while when you're making progress. Rewards yourself. Go to Starbucks, have a long day. But don't get to the point where it becomes a habit again, because otherwise you're going to be falling right back into that same cycle all over again. And then what's a really good thing that we can do? Are there ways to teach next generation?

Is that a good way to help keep them from getting underwater when they first, you know, strike out on their own? Well, that's very important, and I'm glad you brought that up. It is never too early to teach your children financial literacy. And a lot of banks now have cards and accounts set up specifically for children with spending limits.

So you teach them about budgeting. You open out or give them a debit card with a $100, $200 limit so they know right away how much they have and if they blow it all in the first day, or whether you gain financial literacy through practice, it's you know, we stand here and talk about and talk about habits through practice that you really understand how to stay out of debt.

It's never too early to start planning to stay out of debt and never too late to try and get out. Right. To make smart choices. Absolutely. Yes.