Debt can be a double-edged sword, if used wisely, it can help you achieve financial goals like buying a home or starting a business. However, bad debt – debt that burdens you with high interest rates and hinders your financial well-being – can be a major roadblock.

Here are 3 essential ways to avoid bad debt and keep your finances healthy:

1. Budget Like a Boss

The first step is understanding your income and expenses. Create a budget that tracks your inflows and outflows. Several free budgeting apps and online tools can help you get started.

2. Prioritize Needs vs. Wants: Differentiate between essential needs (rent, groceries) and wants (new clothes, eating out). Allocate your income accordingly, prioritizing needs and leaving room for some fun, but affordable, wants.

3. Live Below Your Means: Don’t spend more than you earn. Avoid lifestyle inflation – as your income increases, don’t automatically increase your spending. Aim to save a portion of your income every month.

Debt Avalanche vs. Debt Snowball:

There are strategies to climb out if you’re already struggling with debt. The “debt avalanche” method focuses on paying off the debt with the highest interest rate first, regardless of the total amount. The “debt snowball” method focuses on paying off the smallest debt first, regardless of interest rate, to gain momentum and a sense of accomplishment.