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Bad Spending Habits and Avoiding Debt Pitfalls
Sure, it’s fun to shop and reward yourself every once in a while. However, unless you happen to have the money-making power of Bill Gates, you can easily find yourself buried up to your eyeballs in debt. Before that happens, take a step back and take a good long look at your money management skills and spending habits.
Spending More Than You Can Afford. Put down the iPhone and back away from your credit card. If you can’t afford to buy the Bright and Pretty this month, you’ll never be able to afford it next month. Saving up for what you want may sound like child’s play, especially in this “I want it NOW!” world but you can save yourself a lot of headaches if you buy your luxuries using extra income that you earn and/or the money you save by cutting back on expenses. Again, this is simply common sense at work – live within your means and budget. Or get a part-time job or find ways to make that extra income if you really want to raise your living standards.
The Balance Transfer Game. Balance transfers can be a useful tool in consolidating your debt and taking advantage of lower interest rates. However, you can badly affect your credit score if you constantly bounce your debt with various cards and it won’t help you out of debt if you’re still charging yet another new purchase. Carefully study the fine print for that balance transfer offer before you think of switching credit card companies. Don’t add yet another charge to that new card – finish paying off your debt first. Or better yet, negotiate for lower interest rates with your current creditor.
Using Credit Instead of Cash. Avoid using credit cards if you actually have the cash to spend to begin with. If you can see how much money is left in your wallet, you’ll probably think long and hard before you make that next purchase. A credit card doesn’t mean you can afford expensive items – it’s simply meant to be a convenience but it’s not a way to stretch your income to the absolute limit. Use cash for purchases under $50 or for easily consumable or insignificant items. That way you don’t end up paying useless dollars in interest rates for a bad restaurant meal or even just a pack of beer.
What Emergency Fund? It’s always a good idea to have cash savings that you can easily get your hands on in case of emergencies. If you don’t have an emergency fund yet, start creating one now. Don’t put this off for tomorrow or the next day – you never know when disaster will strike.  You can always start by putting a small amount away and eventually adding to that as your income allows you. Unexpected income can also be a great source for emergency funds – don’t blow all of your bonus on that gadget or that pair of expensive heels that you’ve been drooling over for months. Put a little of that away. Nothing beats the security of knowing that if the worst happens, you have something to use to get yourself out of a bind.
Ooops, I Think I Forgot The Bill Date. Maybe you think that you can shrug off that late fee. What’s a few dollars here and there? Think about it this way – you could have used that extra money for necessities, saved up for the luxury item you’ve always wanted or for your emergency fund. Keep track of your billing due dates and always pay on time. Mark them on your calendar, use online billing services or send your payment at least 7-10 business days in advance of the due date if you’re using mail. If you’re strapped for cash or can’t make the due date, you should always let your creditor know ahead of time. Some credit card companies can extend your due date, allow lower interest rates or offer other services to help you pay off your debt.
More Than The Minimum. Of course, making at least the minimum payment is better than missing a payment altogether. However, do make an effort to pay at least more than the minimum each month. You will save your money from the high interest rates, finish paying off your debt quicker and improve your credit rating. Even better, pay off the entire balance each month and free your credit card up for that next necessary or emergency expense.
It’s true that bad or careless spending habits can be hard to break and it’s easy to succumb to tempting promotional offers and bargains. With a little discipline and a discerning eye, you can free yourself from spending and debt pitfalls and really enjoy the benefits of your hard work, instead of worrying about how you’re going to afford that next bill payment.