Of all the reasons people end up in debt, our behavior is the one thing in which we have complete control.
By understanding the behaviors that lead to debt problems, we can hopefully avoid falling into that burdensome trap.
The first step toward having a healthy relationship with debt and credit is to identify the behaviors that can get us into trouble.
Here are six bad behaviors that will get you into debt and how to avoid them.
1. Carrying too many credit cards.
This is perhaps the biggest avoidable reason people get into trouble with debt.
Carrying more credit cards than you can keep track of will cause you to not only spend more than you should, but it also makes it more difficult to budget for and make the payments.
Typically we should carry no more than three credit cards, and that includes store cards, gas cards and other specialty cards.
If you have more credit cards than this, take them out of your wallet and stop using them. Pay off the balance and put them in a drawer somewhere if you don’t want to cancel them all together.
2. Making only the minimum payment on your cards.
This is another completely avoidable mistake many people make.
By making only the minimum payments, you are paying the maximum amount of interest to the bank or card issuer.
That’s because the minimum payment is usually applied to the interest charge first and only a small amount goes toward reducing the principle balance you owe.
Instead, pay the most you possibly can, even if that is only toward one card initially. Once that card is paid off, you can focus your financial attention to the next one and so on.
3. Overspending and spending future earnings.
One of the traps people can easily fall into is spending money they know they don’t have but expect to have in the future.
It works like this: You know you can’t afford that new electronic gadget now, but you know you have an overtime check coming in. So why not buy it now using a credit card?
Well, because the money you earn will likely arrive before the credit card bill and will usually get spent on something else.
By the time the bill arrives, you find you can’t pay it off and slip further into debt.
“Making these behaviors a habit will
ensure you don’t end up with more debt.”
4. Not paying attention to your credit report and credit score.
Not checking your credit report at least annually amounts to blindly trusting all your creditors with your financial future.
It’s like saying no one could possibly make a mistake when it comes to your debts and bills.
According to the Federal Trade Commission, as much as 26 percent of all consumer credit reports contain errors. The only way to avoid yours being one of them is to check your credit history and file a dispute if you see an error.
5. Failing to create a budget.
One of the best ways to avoid getting into debt is to create a budget and stick to it. Failing to do so will certainly lead to more debt and bigger financial problems.
It’s like setting off on a trip somewhere without a map and without knowing where you’re going. The best-case scenario is you end up lost.
By creating a budget, you now have a map to follow and you’ll know when you get off track. A budget will act as a guide on the road to your financial future.
6. Playing the balance transfer game.
Another one of the tricks we try to use that seldom works the way we want it to is playing the balance transfer game.
You know how it works: You get a zero interest card and then transfer your high-rate card balance to this new one.
The problem is it now creates at least two cards for you to use, and the balance will typically not get paid by the time your zero interest card reverts to the normalized rate.
When that happens, you go looking for a new zero interest card and the madness starts all over – except now there are two balances to transfer.
We all have a choice in how we use our credit cards and store cards. By avoiding these behaviors, you are choosing to live responsibly with credit.
Making these good behaviors a habit will ensure you don’t accidentally end up with more debt than you can handle.
Photo source: capitalistexploits.at.