Debt problems don’t happen overnight. They are the cumulative result of habits that build up over time. Often times, when people find themselves overwhelmed with debt they wish that they could just turn back the clock and change their ways. Instead of lamenting over past mistakes, why not identify problem-causing habits now and stop them in their tracks? Here are five bad habits that you can stop now and save yourself trouble later on.
Bad Habit #1- Trying to Manage Money without a Budget
Budgeting is one of those terms, like dieting, that makes people cringe. But establishing and working with a budget is one of the best ways to keep yourself out of debt. When you have a budget, you know exactly how much money you’ll be spending and where that spending is going. If you see a great sale or want to splurge on something extra, you’ll either know that you can’t or you’ll spend from an allotted amount. When you work without a budget, you may end up spending money that you should have used to buy groceries, get a hair transplant, or buy that new grandfather clock for your home you have been eyeing. In turn, you end up using a credit card and building up your debt.
Bad Habit #2- Relying on Credit Cards for Daily Expenses
When you use your credit card to buy gas or groceries, like in the above example, you’re actually paying more than you should for those daily expenses. Most people run up their credit cards and then only pay the minimum balance each month. Instead of only paying what you spent, you’ll end up paying up to twice as much.
Bad Habit #3- Making Late Payments on Your Credit Cards
If you’ve found a credit card with a low interest rate, you may be out of luck when you make a late payment. Most credit card companies switch to a penalty APR if you happen to be late on your payment. The penalty APR makes it more difficult to pay off your debts quickly, which can cause you to pay more on your credit cards than you actually owe. In addition, many credit card companies charge a late fee of $29 or more meaning that every time you are late you are digging yourself deeper into debt.
Bad Habit #4- Using PayDay Loan Services
PayDay loan places may seem like a good idea in theory, but their exorbitant interest rates make them more trouble than they are worth. The concept is this: you borrow $100 now and then pay back the company $125 when you get paid. PayDay loans can go up to $500, with a payback amount of $750 or more! Clearly, this isn’t the way to use your money wisely. If you use a budget (see bad habit #1), you’ll never run into a situation where you need emergency money.
Bad Habit #5- Ignoring Your Credit Score
Your credit score determines how much you can borrow, who you can borrow from, what kind of car you drive, what kind of house you can buy and in some cases what kind of job you can get. It is essential that you keep track of your credit score and get a free credit report once per year. You can also register for monitoring services that will alert you of changes in your credit. Considering your credit score effects so much, and the vast majority of credit reports have errors, it’s important to stay on top of this.