Using your credit wisely is the best way to avoid debt. There are certain habits, however, that can derail your efforts. Here are a list of bad habits that you should avoid in order to avoid falling into unmanageable debt.
Not having a budget
When you spend uncontrollably without any idea of whether or not you’ll have money left over, you’re lacking a proper budget and the discipline to minimize debts. A budget offers a way of being mindful of your spending and comparing it to your income streams. It is a plan to help you keep your spending in check by setting up categories and limits to work within. Make your goals and plan your spending accordingly. Don’t spend money that you do not have. Make a list of your income and expenses, look at it, and determine the areas where you need to cut back or save. Your goal should always be to spend less than you bring in to avoid borrowing money.
Having too many credit cards
Having too many credit cards can be a recipe for trouble. Why? When all of that credit is readily available, undisciplined people will be tempted to spend. Of course, there’s nothing wrong with having a set amount of credit cards. The problem is not knowing how to resist the temptation of spending on them. Credit cards should mostly be held for emergencies or necessities.
Not having a savings account or emergency fund
In today’s constantly shifting landscape, this is more critical than ever. Unfortunately, most people are living paycheck to paycheck. When a large unplanned expense comes along, most have to borrow money. This is how the cycle of debt starts. All it takes is one major expense without any savings to cover for it. Life is full of surprises. Most will cost you. Put away a little bit of your income each month into an emergency fund or savings account and don’t touch it unless you absolutely need it. This will help you avoid taking on additional debt during emergencies.
Impulse buying and spending
Impulsive spending can get you into debt trouble fast. While it’s human nature to want to make yourself happy by being good to yourself every now and then with a self-indulgent purchase, too many unplanned spending sprees will blow out your budget entirely. Next time you feel tempted to splurge on yourself, give yourself a bit of time to really give it some though. Try waiting a week, or even a month if you can, to make sure you absolutely really want, and can really afford, that impulse purchase.
Using debt to pay off debt
When you use credit cards to pay off other cards, and loans to pay off other loans, you’re not paying off anything. You’re just shuffling your debt around and incurring more debt each time you do so. Worst of all, you’ll be incurring high transaction or origination fees. You’ll feel like you’re taking one step forward, but in reality, you’re taking two steps backwards. The only time this is beneficial is if you can transfer a balance from a high-interest rate card to one with a lower limit. In addition, always try to negotiate away the transfer fee. Otherwise, you’ll be spending more on it than the interest savings you might gain from the transfer. Don’t just use balance transfers as a way to dodge payments. The debt will mount up and only make your situation much worse.
Be careful to avoid bad spending habits as you could quickly end up in more debt than you can manage. If you area already in debt, or even have accounts in collections that are past due, it is important to begin to take steps right now to get control of your budget and spending habits to remedy your finances.
Remember – monitor your credit report, have a plan/budget, and stick to it. Most importantly – take action now.
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