Debt in Switzerland: How to avoid debt with Swiss precision (part 2)

Over half a million Swiss people know what it means to be deeply indebted. But don’t worry; it doesn’t always have to be a personal financial disaster, even when your finances aren’t running as smoothly as in your pastel-coloured dreams.
In this second part of our series on debt in Switzerland, we’ll take a closer look at how you can deal with your money the smart way and avoid debt that’s even thinking about dragging your wallet down.

Seven golden rules so that your numbers stay in the beautiful black

Maybe you love living la dolce vita and tend to get carried away when it comes to spending. Or maybe you’re one of those people who think twice about every purchase before committing. Either way, the topic of avoiding debt in Switzerland concerns us all – and, surprisingly, financial recklessness is almost never what ruins us. Most often it’s a life crisis or other unlucky event, such as a separation or job loss. All the more reason to keep a firm grip on your money and learn how to be financially healthy. Here are seven rules that’ll help you to steer clear of numbers written in red ink:

Sometimes you don’t have a good overview of your finances; you can’t see the forest for the trees. But if you want to stay on course with your money, you need to have a sense of the bigger picture. Be your own accountant. Having a clear overview of your monthly income and fixed costs can give you a realistic picture and help with keeping your finances under control. By budgeting, you can spot unnecessary spending and calculate savings potential at the same time. A budget is your best friend in avoiding debt and staying creditworthy. Creditworthiness is like a financial passport in Switzerland – it influences whether you can rent an apartment or take on loans. In order to keep up your creditworthiness, you should always pay your bills on time, cleverly manage your credit card balance, and be careful when it comes to new credit applications. But more on that later.

Some budget tips straight from the Yuhniverse:

The more details there are in your budget, the clearer your overview will be. Start by listing all of your income sources (salary, side hustle, etc.). Then move on to spending. Where does your money sneak away to on the regular? Usually, it goes toward rent, mortgage, groceries, transport, electricity, water, and gas ­– and don’t forget to add a little buffer for irregular expenses like car repairs or doctor’s appointments. Now subtract your costs from your income. You can move whatever is left to your savings account or invest it (both are especially easy and cost-efficient on the Yuh app). It pays to review your spending regularly and prioritise what you spend it on – especially if your income isn’t the same from month to month. Ask yourself what’s really important and what isn’t. If you notice you’re spending too much in one area or that you’re operating at a loss, you need to adjust your budget. Stick to the 50-30-20 formula: If you spend 50% of your income on fixed costs and 30% on leisure and lifestyle, while putting 20% into savings, you can steadily build your wealth from month to month.

Rule #2 presumes that you have understood Rule #1. Only when you know your budget can you know how much is actually at your disposal. If you have 300 CHF in your account, you can spend exactly 300 CHF – no more. By the way, did you know that you can’t overdraft your Yuh account? What yuh see is what you get, which is in the best interest of our Yuhsers. So far, so good. But no worries, we’re not naive. We know that there are dangers and temptations lurking in every corner of the financial jungle. If you’ve ever been enticed by the payment option to «buy now, pay later» (for example, by Klarna or PayPal), you’ll know it’s a snake in the grass. Receiving the goods now and having to pay 14 or 30 days later sounds straightforward, but it can lead to you losing sight of your spending. And not just that ­– often there are high interest rates or reminder fees attached if you miss the payment deadline. Worst case scenario, a collection agency will step in. And suddenly, you’re paying so much more than you would have with an instant payment.
Many shops offer a zero-interest loan, which is payment by instalment with interest-free financing. For this type of financing, the retailer works directly with a partner bank, because you are actually borrowing real credit. As always, the devil’s in the details: It’s important to read and understand the fine print, because that’s where the penalty interest rate for late payments or an expensive balance due after the end of the credit period hides. Think hard: Do you really need the desired product right now, or can it wait a little bit until you’ve saved up the necessary amount? Small tip: If you’re fortunate enough to have this as an option, small credit loans taken out from Grandma or Grandpa, or Mum or Dad, are usually also zero interest credit – and sometimes, if you ask really nicely, you won’t even have to pay it back at all.

Even if your motto isn’t «Prada or nada», you should still keep in mind that it’s important and reasonable to prioritise your spending. Remember that, above all else, you’re a living being that needs energy to survive. What does that mean? Food should be your top priority! Switzerland has comparatively cold winters, and camping isn’t really a feasible solution even during the summer, so next on your priority list has to be housing, complete with electricity, water, and heating. Magic carpets only exist in fairy tales, and you can’t bank on Elon Musk announcing teleportation as his next big invention, so transport should be third on your list. Once all the necessities are covered and you’ve reviewed your budget (see Rule #1), you can think about how much money you want to spend – and can spend – on non-essential bells and whistles.

Have you already read our first article on the topic of debt? If so, excellent – you’ve done your homework, and you know the difference between good debt and bad debt. Just a quick reminder: Good debt helps you to reach your long-term financial goals or offers other financial benefits. Investment debt, for example, adds value through income and wealth growth. This kind of debt often has lower interest rates and increases the value of your investment. Consumer debt arises from unnecessary consumption or short-term spending that burdens your account with high interest and should be avoided. Whether it’s credit card debt, a car loan, payment by instalments for soft goods, express credit, or debt for luxury goods, steer clear of these «bad boys» whenever possible, because they can suck you into the debt spiral in the blink of an eye.

Imagine you were an aerial acrobat – would you swing around at dizzying heights without a safety net below you? You could, of course, but there’s the risk of falling from the skies and coming down to earth with a bang. Translated into financial terms, this means that it makes sense to protect yourself against debt as much as possible. Do you already have insurance for private liability, occupational disability, or unemployability? If not, then make an appointment with an insurance broker and explore your options. Better safe than sorry.

You’re just living your life without any (major) worries when suddenly – BAM! Your car breaks down, a tooth breaks off, or your dog only wants to eat the very healthy but very expensive kind of kibble. What now? Of course, you turn to your savings. What do you mean, you don’t have any? Then it’s about time you start moving money towards a rainy-day pot. As we know, sometimes when it rains, it pours. It’d be best to move a certain amount to your savings account immediately on payday. Experts recommend having a safety buffer of about two to three months’ income. After a while, you’ll have a nice sum there, and even a melting freezer won’t make you break a sweat. If you want to level up even more, you can boost your savings buffer with fun money challenges. Check out our article about this savings trend.
Another small tip: In your Yuh app, you can create saving pots that help you put money away for a rainy day. For every pot, you can create automatic recurring transfers. And to avoid boredom, you can even give your savings pots funny names such as «Captain Cash» or «Dollar Dynamo». A nice extra when saving with Yuh.

Financial education is the best protection against debt. Understand the basics of personal finance, including budgeting, saving, and investing. Switzerland offers various resources and courses for financial education. Don’t hesitate to seek advice from experts when it comes to finance. Many banks and financial institutions offer consultant services that can help you make informed decisions to keep your finances under control.

This last point here is not a rule, but it could have interesting long-term effects on your wallet. Investments can be a powerful tool for financial stability. They can grow your wealth over time and offer a buffer against debt. Consider starting off with low-risk options such as a pillar 3a account or ETFs, especially if you’re an investment newbie. Always do your research or seek advice from a financial adviser to fine-tune your investments to your risk tolerance and financial goals. Did you know that Yuh has a great 3a product that diversifies your assets based on five different risk strategies? Learn more here about our solutions for the pillar 3a.

The main message is clear: Debt can happen to everybody, and there are both obstacles and solutions related to debt that are unique to Switzerland. Our seven ideas for avoiding debt show how important it is to deal with the topic early on rather than bury your head in the sand.
There is a light at the end of the tunnel, and that brings us to the next point: The third and last part of our series will focus on the topic of getting out of debt. If you or someone you know is trying to get out of debt right now, keep your head up. We’ll take a look at the different options and tools that are available to you and how to best use them to straighten out your financial situation. Stay positive and keep in mind that you’re not alone on this path.
By the way, if you haven’t read it yet, you might also be interested in our first article in this series, debunking myths and checking facts about debt in Switzerland.