A habit, good or bad, is a recurrent, often unconscious pattern of behaviour that is acquired through repetition. Some of our financial habits lead us into debt. The best way to avoid further debt is to stay away from the habits that lead to it. If you can identify those habits, you can begin to tackle them or avoid them entirely. Below are some of the habits that can cause you to accumulate debt:
1. Continuously transferring balances from one credit card to another.
Even though it might make sense to take advantage of low introductory interest rate, it doesn’t make sense to keep transferring balances to juggle debt. Using balance transfers only allows you to avoid interest on your debt for a short time. If you are ever without a credit card to transfer balances to, you’ll end up in a messy financial situation.
2. Making late payments which – nomally cost more than you think.
Not only are you required to pay a late fee – that could have been used to reduce your balance – your interest rate will likely default to a higher rate, costing you more to carry a balance on your card from one month to the next. Because of a universal default clause in your credit card agreement, your other creditors might begin charging a higher interest rate as well.
3. Paying only the minimums causes you to pay more in finance charges over the long run. The money you spend paying interest could be used to pay off your credit card balance, put into savings, or used to purchase something nice (and necessary) for yourself. Instead of paying the minimums on your credit cards, pay as much as you can each month in order to get rid of the debt and in doing so avoid spending more money in interest charges.
4. Keeping silent when you have financial trouble is not a good idea. You might be apprehensive about telling your creditors that you may not be able to make your payment, but on the other hand you might be able to get help. Typically, creditors will work with you in times of financial distress, but you won’t know if you don’t ask.
5. Failing to check your credit report because you are afraid to see what’s on it is not a smart idea. You should always be aware of who you owe and how much they say you owe them. Otherwise debt can pile up and before you know it, you have too much debt it is no longer manageable that is, your out-goings have now outstrip your income.
6. Not setting a budget can lead to overspending. Without a budget, you don’t have a firm way of controlling your spending. The budget helps you to measure your income and expenditure. You can only manage what you can measure; otherwise, it will be easy to spend too much money on unnecessary items. You should have a budget for all of your monthly, quarterly, and yearly expenses. That way you don’t have to struggle to pay your bills when they come in the mail.
Now how do you break these habits?
- Acknowledge your bad habits: The first step to being free from any habit is admit you have it and that you need to change. If you are overspending every month, admit that you don’t have the money that you are spoending and then STOP spending. If you are in a state of denial, you won’t recognise that you have a bad money habit that needs changing.
- Deal with one habit at a time: It usually takes about 30 days of consistent action to break an ungoing habit and even though your habits may not have been formed all at once, it is also very unlikely that you can break them all at once – unless God intervenes. Take one habit and deal with it for about 30 days or until it breaks and then move on to the next one. There is power in concentration.
- Always replace a bad habit with a good one: The most unnatural thing in the world is vacuum. There is always the need to fill it with something – good or bad. It is necessary that you replace a habit that you have conquered with one that will enrich your new life. Giving up buying a monthly DVD (at least until you’re debt-free) may be replaced with borrowing a book from the library to read instead.
- Reward yourself for success: Try to reward yourself with every success you achieve in your habit-breaking quest. The reward to set for yourself may even become a motivation by which the habit will be dealt with quickly. Every success is a milestone in your new life and should be celebrated – within reason. You may treat yourself to a day out when you completely pay-off a credit card’s balance.
- Change your environment: If necessary, you may need to change anything negative in your environment including friends who have no integrity in payoff what they owe. You may need to stop going to certain places and participating in certain activities. You have to decide what is best for you.
- Get an accountability partner: If you are married, you and your spouse should be involved in your debt-free plan anyway; if you are single, tell a trustworthy person about what you are trying to do so they may be your accountability partner; so he or she may keep you on track when you are tempted to go ‘off-rail’.
Money Management Coach