Help With Debt: 3 Bad Habits that Lead to Debt
When you actually research debt, you will find tons of articles and information on how to reduce and eliminate debt. Unfortunately, if you are researching debt, you are probably in a situation that requires assistance.
Below are three areas that anyone in debt or falling in to debt should focus on. These 3 points are also areas to become familiar with to stay out of debt.
Failing to Have a Budget
The singles biggest factor that drives people into debt is the lack of or understanding of budgets. Financial control only comes from understanding what you are earning and spending in any given month. If you never construct a budget and figure out what you are spending, the prospect of falling into debt is high whilst establishing a savings will be low.
Budgets can be frustrating; however, they also provide the clarity you need to understand exactly how much disposable cash you have to spend at any given period. If you shirk away from the idea of a budget, you are not alone.
However, a budget does not have to be an onerous task that takes hours to construct and maintain.
The initial setup may take a bit of time but once complete, ongoing maintenance should be simple – if you use an app, it may be easier and there are numerous free ones on the market.
Learn more about money skills and take control of your finances.
The Pitfalls of Credit Cards or Loans
There are many. The first pitfall of any type of credit is not being able to pay off the balance on a monthly basis. Interest at 10-25% on any purchase on a revolving account that compounds interest daily can take hundreds, if not thousands of dollars out of your pocket every year. If using credit in the form of a card or loan, have a plan. It shouldn’t be used as savings or general income…you are borrowing it and it comes at an cost.
Ideally, credit cards should be used for emergencies, business or travel. Essentially it should be for instances when you don’t want to carry cash and have the means to pay it off immediately.
The trap of minimum payments and access to large amounts of money you don’t have can be very tempting. Having access to credit is not a worry in its self, it’s how it is used.
Outside of unexpected financial emergencies, credit cards and personal loans are the largest incubators of debt.
If you are using or considering using credit to pay for everyday living needs like utility bills, food or rent – look to alternative solutions for help. Putting yourself in deeper debt through credit is not the answer. Speak to a free financial counsellor to get assistance.
Not Having a Rainy-Day Fund
Most experts say this should be one to two months’ salary, and many consumers agree this would be a great to have. Yet, not starting or having any type of emergency funds to draw on can often cause stressful and difficult situations.
Creating an emergency fund doesn’t have to be difficult, starting is simple – simply have a direct debt take a few dollars from each pay and transfer into a specific savings account. Money you never see will never be missed and over time will grow into a sizable emergency fund.
Having this money to pay for unexpected expenses is how to stay out of debt and create savings beyond just an emergency fund.
At the end of the day, staying out of debt comes down to a few simple principles; budget, establish a savings so you don’t have to borrow and understand credit. Don’t get caught up with access to easy money with low monthly repayments.
