12/21/2011 7:30 PM ET|
7 habits that keep you in debt
Sometimes things that seem like good ideas -- or harmless little indulgences -- can keep you from getting traction when you try to move ahead financially.
If mood-boosting shopping sprees and racking up credit card rewards are a part of your lifestyle, you could be fueling a dangerous debt addiction. Results of Card Hub's latest credit card debt study show that Americans accumulated $18.4 billion in credit card debt in the second quarter of 2011 alone. Credit card debt continues to be a major problem for the average American consumer, yet many are still living a lifestyle that supports a costly debt habit.
Here are seven bad habits that could be fueling your debt addiction:
Do you frequently borrow clothes, household items and even money from friends and family? If you always seem to be indebted to others in some way -- and fail to repay your debts regularly -- you could be addicted to debt. Find ways to make ends meet and stop relying on others to get by. The borrower mentality can leave you in a perpetual debt cycle.
2. Making impulsive purchases
Whether you're a Groupon junkie or just can't resist a sale, impulsive shopping habits could be fueling a debt addiction. Few people work with a budget for last-minute purchases, and if you don't have funds available, you're likely to use a credit card to get what you want. Curb those urges to shop deal sites and other last-minute offers.
3. Spending to boost your mood
If you indulge in retail therapy regularly, make sure you support the effort on a cash-only basis. If you rely on credit cards to get your shopping fix, it can be difficult to cover the costs of an emotional shopping spree without going into debt. Climbing out of debt will be that much more difficult if you've racked up huge balances to get your fix. Avoid shopping when emotions are running high.
4. Depending on cash-back credit cards
The concept of earning money for spending can be very seductive. If you tend to pay with credit just because you know you are "earning" a portion of it back in the form of cash or rewards points, you could be fueling a dangerous addiction to credit card spending. Cash-back credit cards typically pay you back a very small percentage of your charges -- think $1 for every $100 you charge. Unless you're very disciplined about paying off your entire balance by month's end, the money you earn back will barely cover the interest charges you acquired on that spending spree.
5. Routinely transferring balances
While it's smart to transfer high-interest balances to a low-interest credit card when you can, it's also easy to get caught in a game of "round robin" with your credit cards. When you find yourself paying off one credit card with another card, you could be setting yourself up for an endless debt loop. Pay off your balances, and stop using the cards to get off this dangerous cycle.
6. Living on interest-free financing plans
Zero-percent interest for the next 18 months and interest-free financing plans are great marketing strategies. Big-ticket items that can be financed with a no-interest offer seem like a great deal on the day of the purchase, but you could end up spending much more than you would have if you had paid with cash. The lure of "have it now, pay for it later" can be hard to resist -- and it will more than likely leave you with a pile of debt. Save your money for larger purchases so you don't end up carrying extra debt -- interest-free or not -- over the next couple of years.
7. Keeping up with the Joneses
If you're constantly comparing yourself with others and trying to outdo the neighbors with material goods, you could be fueling a debt addiction. One-upping friends and family by purchasing luxuries on credit can turn into a competitive sport -- a costly one. Avoid serious financial problems by living within your means and buying only things you can honestly afford. Trying to keep up with the Joneses can be the fast track to debt problems or even bankruptcy.
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I have learned it's all about self discipline (and I'm not the greatest at it), but getting better. I pay off my credit cards every month, and I do use them for daily purchases for the cash back, but I budget the money to pay them off before I spend it. Self discipline, no matter when you learn it, goes a heck of a long way.
A way to make yourself financially realistic is to live "a little below your income".
Most debtors are living a little above their income and the difference isn't that great.
The sacrifice is small and the rewards are great. Imagine a life where you don't fight over money with your mate and can sleep at night. No stress.
Im an extrovert but I do not spend as much as I used to. I have holiday parties in which everyone contributes a platter ($20 the most) and that is our gift to ourselves for christmas. my debts are my mortgage and my student loans. ...
I sometimes think about selling my home and using the proceeds to pay off my student loans and remaining completely debt free (and homeless..LOL!!!).
If I ever get married the first thing I will do is sell and pay off my student debt. Its like a black cloud over my head. My credit cards never go over about $500 a month and they get paid off immediately (utilities and food purchases) when I get paid. I have no car and my commuting costs are paid for by my job. I want to be totally debt free in 2 years.
Now, this may playing around the definition of "impulse purchase", but I would like to add that it is possible to budget for impulse purchases, and the article doesn't seem to address it much more than "curbing" the appetite. If you know that you tend to spend on impulse buys, go ahead and section a portion of your budget for it. Stay within that spending frame, and you have the best of both worlds.
Some of the best advice I feel that I have ever recieved was that deals happen all the time. There is no such thing as a one time only deal. The trick to getting ahead is to be financially ready when a deal does come along.
I use "Interest Free" deals, along with secured loans, as the means to build my credit scores without opening and using credit cards. I purchased a memory foam bed and a large TV with such offers, though I had the cash to pay for the items outright. I would typically pay at least half of the purchase in cash, and then pay the remainder off (long) before the interest free term expired.
Old Man 76, I've noticed the same thing. I'm generally introverted and have always been a saver. Many of my friends that are extroverted do not save. I think part of it is the cost of maintaining a social life. Bars and restaurants are NOT cheap.
If you really need to be told these very-obvious things, you are mentally deficient and have bigger problems. It's like telling people that if they are always going to casinos, they are likely to lose some money, or telling them that the sun rises in the east.
And what's with the first couple of comments about HOAs?
The key to staying debt free is to not go overboard with credit cards and pay them off if your not the type to do this or can't then you need to discipline yourself ask yourself "do you really need this?" or just want it? you feel good buying it but later if your real with yourself you realize you didn't really need it and it becomes a vicious cycle an emotional weight every month. Debt equals stress.
I'm debt free because I got tired of being broke.
You are actually wrong. the 401(k)'s are safe from bankruptcy up to $1 million but when you pass on they become part of your estate which will be used to pay off any debts you owe before the money passes on to your heirs.
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