12 Dangerous Habits That Can Put You Even Deeper Into Debt
US consumer debt is at an all-time high. According to the New York Fed Consumer Credit Panel, total household debt in the third quarter of 2022 reached $16.5 trillion.
Is there a way to crush your debt once and for all? Absolutely, but it requires avoiding bad financial habits that can put you further into debt.
Here are 12 of those dangerous habits and what to do instead.
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1. Spend money to follow others
Peer pressure is enormous. You may not feel a direct command to follow others in your social circle, but it can get sneaky. If one of your friends buys a new car, you might be tempted to buy one too.
Break this habit by realizing that you bear all the consequences of your expenses. In other words, it’s not your friends who will have to clean up the debt. This job is yours and yours alone. Better to avoid it altogether by living within your means.
2. Don’t automate savings
For most people, if it’s in their main checking account, it’s up for grabs. Spending all your money is a guaranteed way to keep living paycheck to paycheck.
Instead of continuing the cycle, break it by adjusting your payroll distribution. You can send a fixed amount to your main checking account and a percentage on savings. This will ensure that you are constantly building an emergency fund and avoiding further debt.
Payday loans are often sought after in emergency situations, but they are bad business: they can have interest rates of over 600%!
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3. Not having a coherent budget strategy
Not having a budget strategy is a dangerous habit. You don’t know how much you earn, how much you take out, or even how much you need to meet expected and unexpected expenses in life.
Once you have a budget, things that used to be “emergencies,” like car maintenance and property taxes, just become part of the budget.
4. Not Tracking Expenses
Expenses tend to creep in, making it easy to end up with “more butterflies than money,” as the old saying goes.
It’s a dangerous habit when it comes to money, because if you have no idea of your expenses, you can’t really plan for unforeseen events. This puts you in a difficult position where you may have to take out expensive loans or rack up credit cards, which will push you further into debt.
Pro Tip: Most of the best budgeting apps automatically analyze your expenses from a linked bank account to keep you up to date on your expenses.
5. Eat out every week
Checking out the best restaurants in your town is fun, but it can add up very quickly. Even the fast food groceries start piling up.
If you order weekly, that’s money wasting the ability to benefit you beyond a full belly for the evening.
A better approach is to eat within your budget, but pack lunches for work and cook most of your meals at home.
6. Pay the minimum on credit cards and loans
Paying the minimum on credit cards is a surefire way to stay in debt longer. This is because the minimum balance on credit cards is used primarily to pay interest and very little of the balance.
Pro Tip: By paying more, more of your payment goes to the original balance rather than just interest. You can also recover what you owe by switching to a low-interest credit card.
7. Buy more house than you can afford
What you get in mortgage terms and what you can actually comfortably afford each month are often two different numbers.
As a general rule, your mortgage should not exceed 28% of your take home pay from an affordability perspective.
In some markets, this may mean a lot less house than expected. But having the cash to handle repairs, saving for unexpected expenses, and always putting aside for retirement is far more important than having the biggest house on the block.
8. Shopping for every sale
Unfortunately, the science of retail is designed to take as much money as possible. Indeed, shopping around for every sale is a dangerous habit that can put you further into debt because it encourages spending.
This means that not all chords are really chords. Even if it is a 75% sale or clearance agreement, the costs can still add up. Stay home and don’t add items to your online shopping cart either.
9. Spending too much on a car
Just like spending to keep up with others, you can also spend too much on a car. It is a purchase with guaranteed value and requires care and maintenance.
Pro Tip: Buy a reliable and affordable car when the total cost of ownership is calculated. And try these tips to save money on car insurance.
10. Skip Car Maintenance Until It’s Too Late
That check engine light won’t go away just because you put a little duct tape on it. Unfortunately, when money is tight, it is difficult to find space for auto repairs. This is why having an emergency fund is so important.
While some small businesses now offer financing through third parties, the interest rates are not very good, which makes it even more difficult to deleverage.
Pro Tip: Set aside money for repairs throughout the year. Even if you don’t need a lot of repairs, the fund may be enough to repair your vehicle or buy a new one without stress.
11. Not monitoring your credit
If you don’t look at your credit, you are exposing yourself to fraud or even incorrect information.
Traditionally, the three major credit bureaus allowed one free credit report every year, but now consumers can check their credit report every week. This is a temporary benefit due to the ongoing COVID-19 pandemic.
This habit can push you further into debt, as your credit score has a direct impact on the interest rates you receive. The worse the score, the more you will pay for credit cards, loans and even apartments.
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12. Let the bass devour your money
The bar can be an expensive place, with an average tab for just four glasses ranging from $80 to $100.
Add in the cost of parking or the taxi ride, plus any other bar stops you’ll make, and going out for a night on the town can put you in more debt than you think.
Entertainment is one of the biggest expense categories that can spiral out of control, but unlike rent or utilities, you can control it.
At the end of the line
Good financial habits open great doors. If you’re trying to achieve bigger goals, like buying a house or taking a better vacation, it all starts with developing good money habits and avoiding dangerous things.
Of course, that’s not the only part of the puzzle to solve. Eventually, you’ll have to manage your income, including raises, promotions, or even a side hustle.
Start by saving and investing money, and you’ll soon find that you have enough leeway to grow your bank account as well.
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