5 Habits That Could Easily Put You in Debt
, by Rob Kaufman
There are a lot more than 5 habits that could lead to debt, but because of the restriction of space (and attention span), we're going to focus on what we consider the top 5.
We're all probably guilty of practicing some of these ... at least once in awhile. The problem occurs when we start to do them all the time and they truly become habits. Overspending on a small gift for yourself a few times a year shouldn't put you in debt. It's when you overspend every week or with every paycheck that you start to build the road to debt - a path on which you want to stop and turn around - then walk away from as quickly as possible.
Habits to Avoid Debt
Nobody wants to feel the burden of debt. It's scary, frustrating, embarrassing and causes way too much anxiety. Take a look below at 5 habits we feel you should avoid in order to help keep you far away from this worrisome (and credit-damaging) burden.
Failing to keep an eye on your credit report.
Have you checked your report lately for errors that might be lowering your credit score? Have you looked to see if an identity thief might have opened an account in your name and is putting you in debt without you knowing about it? It's imperative to know what's going on within your credit reports (from all three credit reporting agencies) so that you can fix any mistakes and stop identity thieves in their tracks!
Waiting to create a budget.
The longer you wait to budget your money, the quicker you could find yourself in debt. Not being intimately involved with your numbers - from current income and expenses to future income and expenses - could mean you'll have to charge more and/or steal from the funds you've set aside for emergencies. Carefully determine how much you can actually spend each month and stick to it no matter what... your debt-free future depends on it.
Not starting an emergency fund.
Think about those unanticipated expenses caused by illness... auto problems... job loss... appliance breakdowns... Do you have an emergency fund set up for those expenses? If not, you might have to borrow money to pay for these things and that can start the debt ball rolling. Review your monthly bills and receipts to get a good idea of how much you're currently spending each month. That will allow you to set up a savings goal and figure out how to fill your fund with the money required for six months' worth of expenses.
Charge vs. cash.
Are there times when you could've paid with cash and/or a debit card but chose to pay with a credit card instead? Smaller purchases for which you charge instead of pay cash can quickly add up - especially if you already have a balance on that credit card. Unpaid balances mean interest payments that add more money to your outstanding balance. In the end, the balances grow, as does the debt, and you're caught in a debtor's trap. It's a better choice to pay lower cost purchases with cash instead of putting more stress on your credit card... and your peace of mind.
Abusing balance transfers.
It can be a good idea to transfer balances on high-interest rate credit cards to lower interest rate credit cards as long as you don't charge on the new card and pay off the balance before the expiration of the introductory rate. As you can imagine, some people start to use the new credit card for additional purchases (which might incur a different or higher interest rate) and pull themselves further in debt without even paying off any of the initial balance. Again, if you're going to transfer a balance to another card, the only transactions on that card should be payments to pay off the balance. Otherwise, you'll just be spinning your wheels. Find out if you should try a balance transfer card in our blog post.