Monday, March 6, 2017

Getting rid of debt and habits that lead to debt.

Getting rid of debt and habits that lead to debt.

Nobody likes to go into debt, true? Unfortunately, however, keeping those prominently red marks out of your account books is often easier said than done. And if we are honest with ourselves, we will agree that debt is not something that happens overnight, out of nowhere or just coincidentally. It comes about as a buildup of certain spending habits. Some habits that we indulge in daily; you know, buying a latte every morning, a new pair of shoes every so often, might seem harmless at first but have an adverse effect on your finances in the long run.

Recognizing and identifying these habits early could not only save you a lot of cash but also stress in your later year. Often when people find themselves in over their heads in debt, they regret their past actions and wish they could turn back time and make a few adjustments to their prior habits. However, lamenting over past mistakes is as good as crying over spilled milk, don’t you agree? Why not start identifying bad habits now and start stopping them in their tracks? Take a look at some of these bad habits that could easily lead to debt and how you could possibly avoid them.

1.    Spending more than you make.

It is impossible for you to spend $800 per month while your paycheck is just $500, right? Wrong! The habit of spending more money than you earn is easier than you think. And the worst part is, you may be doing this without realizing it. This could be through borrowing from other people, dipping into your savings or using a credit card.

You can get away with this for a short amount of time, but sooner or later these terrible spending habits will catch up with you. You may end up maxing out of your credit cards, depleting your savings or run out of creditors to borrow from.

Remedying this is simple! Keep your spending within your income in order to leave within your means, and rid yourself of debt.

2.    Managing money without a budget.

Budgeting, just like dieting, is one of those terms that make some people cringe just at the sound of it. However, creating a budget and working with one is one of the best ways to keep oneself debt free. With a budget, you are in a position to know exactly how much money you will be spending in a particular period and where the spending is going. So be it the newly released phone you have been eyeing, or the kitchen plates set you have been planning to buy, allocate them in a budget. Through this, you will be sure to avoid using credit cards on impulse and building up your debt.

3.    Use of credit cards for daily expenses.

Relying on credit cards to buy groceries or gas, among other daily expenses, ends up being more costly since you pay more for such expenditures that you should. Very many people usually run up their credit cards and then pay only the minimum balance monthly. This is a highly detrimental habit that needs to be avoided if you ever want to get ahead financially.

4.    Using credit when you have cash.

Quick question; how many time in the past have you charged goods or services to your credit card while you had the money to pay for it? Why use credit if you have enough money?  You might want to acquire the goods you need without having to pay for them immediately, but this convenience of not using the money you have at hand (in your wallet) eventually comes at a cost. Let’s face it if you are not willing to pay for it right now; chances are, you are likely not going to be willing to do so tomorrow. On top of that, it is going to cost you more.

5.    Paying off debt using debt.

When you use a credit card or worse even, take a loan to pay off another debt, you are simply wasting time. This is because you are merely shifting and shuffling your debt around. But remember, there are transaction fees involved and loan origination fees. This simply put, implies that you are only buying time and increasing your debt.

To break this impossibly bad habit, aim to reduce your spending to ensure you have enough money to repay all your debts monthly.

6.    Ignoring your credit score.

A credit score is important because it determines how much money you can borrow, who you can borrow this money from, what kind of house you can purchase, the kind of car you can drive. In some cases even, the kind of job you can get. It is therefore highly essential that you keep track of your score and monitor it in the event of changes.

7.    Disguising wants as needs.

It is very easy to convince yourself that you need to buy that pair of shoes or that you need to go on that trip. Do you really, though? The bitter truth is that half of the ‘needs’ you think you have, are more or wants. Evaluate yourself and see whether you can live without them. Correct, you need food, shelter; transportation, necessary clothing, but you ‘want’ a better car, a bigger car and so on. If you cannot afford it on cash, then hold on purchasing, and keep saving until you can.

8.    Paying bills in no particular order.

Although paying bills in no order may not matter if you intend to pay for all of the balances, it will matter if you fall short for one period say, one month. For instance, if you decide to pay for all your credit card balances first and then realize you cannot manage to make the minimum payment on monthly rent or mortgage payment. By this, you put yourself at risk of having no roof over your head. You may find yourself taking further loans to cater for such costs, and hence falling deeper into debt. To avoid such dilemmas, prioritize your bill in order of importance and start making the payments accordingly.

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