Poor Habits that Lead to Debt
All of us are prone to splashing out on things every so often – whether you love to buy clothes and shoes, or are constantly looking for the latest car to upgrade to. Yet if your bad spending habits are leading you into a spiral of debt, you need to act soon to avoid financial issues, which could seriously damage your credit score.
Bad spending habits are often easy to solve, even if you feel as though you’re trapped in a bit of a cycle. One of the most important things is to identify where you’re going wrong and which bad spending habits you can stop quickly and effectively. It’s surprising how things add up quickly and often without you realising, so being aware of bad spending habits creeping in will really help you to avoid getting into unnecessary debt.
Identifying the bad spending habits
Did you know that billions of dollars are owed to credit card providers and lenders in Australia today? It’s not uncommon to be in debt, but you need to be able to keep on top of your debt and make any repayments that you owe – in full and on time.
Here are some of the most common poor habits that can lead to debt:
1. Impulse Buying
You need to think about what you’re buying – however big or small. If you’re prone to impulsive spending and making impulse purchases that you simply don’t think through, you could be heading for debt issues.
Many people who impulse buy tend to rationalise their decisions and convince themselves that they need to make the purchase involved. You have to break this behaviour and be honest with yourself – if the purchase isn’t essential (such as making payment for a utility or providing food for your family), it needs to be thoroughly thought through. If you have bad credit and are currently in debt, you need to stop yourself making any impulse purchases at all until your finances are back on track.
2. Using your credit card/s
There are lots of occasions when a credit card is a great way to pay for things. It’s quick, easy and if you pay back your bill at the end of every month there are likely to be few issues with it.
Bad spending habits are often fuelled by people using credit cards to spend money that they don’t have – and won’t have even at the end of the month. Due to increased credit limits or even using multiple credit cards, it’s possible to spend large amounts of money in a short space of time. This is all money that needs to be paid back – often with high rates of interest added on top.
Whenever you make a payment on a credit card, keep a note of it and set yourself your own limit each month. If you go over that limit, you need to stop spending – simple as that.
3. Ignoring mounting debts
It’s easy to ignore mounting debts, and when day to day life is both busy and expensive it’s tempting to do so. Yet when you don’t take note of debts they can quickly spiral out of control and you’ll be facing much bigger financial issues long term.
Don’t put off opening bills, even if you know they’ll be bearing bad news. Deal with issues as and when they happen – seeking help if you need it. There are lots of lenders who deal with people with bad credit so you can always try to consolidate loans and debts in order to reduce interest rates and make repayments easier and simpler.
If you’re unsure how to tackle your debts, burying your head in the sand won’t help things. Try and take a deep breath and face it head-on. There are lots of places you can find help and expert advice to guide you through.
4. Getting competitive
You might not like to admit it but lots of people with bad spending habits are pretty competitive when it comes to keeping up with friends and family. This is an easy trap to fall into especially when you want to drive the latest car and have a house that matches the size and style of those who you spend your time with.
It’s really important that you focus on you though, always considering your individual situation in every financial decision that you make. You never know what other people’s finances may involve – perhaps they’re also struggling with debt, or they may be lucky and have an inheritance that allows them to live a more lavish lifestyle.
Try and make financial decisions based on your personal budget. You know what you have coming into your bank account each month and you know how much you’ve got to spare after all your essential bills have been paid. Being competitive could lead you into debt that simply isn’t worth it.
5. Only paying the minimum
Being savvy about what you owe really does pay off. If you’ve got bad spending habits, it’s often really tempting to take the option often given to debtors to who are offered a ‘minimum payment’.
If you’ve got bad credit, you’ll need to be especially careful about this. You need to not only make the minimum payment but you need to pay back what you actually owe on the balance of a credit card or loan each month.
Only paying the minimum won’t help you get out of debt and it can often lead you further into it. Did you know that the minimum can often be calculated at around 5% – meaning there’s still a lot more money to pay, and that’s money you’ll be paying interest on!
Beating the bad spending habits
Your spending habits are unlikely to change overnight, but they do need to change. It’s important to always work with the right lender for you so that you don’t get pressured or taken advantage of.
Find small ways to make a big difference to your finances, and don’t shy away from issues with debt – they need to be tackled head-on and being honest with yourself and lenders can make a huge difference.
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