Getting into debt is a fate that most people reach at some point in their lives. Whether it’s as a result of overspending on credit cards, following university or because you overspent at a time when you were financially better off, and now you are trying to pick up the pieces.
However, people who get into debt, and spend most of their lives chasing their tails to pay it off, typically follow this set of bad habits when it comes to personal finance. If you want to know what those habits are so you can avoid them for yourself, then read on!
9 Habits of People Who Get Into Debt
THEY BUY ON IMPULSE
Making impulse purchasing decisions is a bad idea for anybody unless you’re Beyonce. Whether or not you think that you have plenty of money and you can afford to buy what you want doesn’t matter. If you buy things without giving proper thought, you will overspend, buy things you don’t really like and buy things that aren’t even fit for purpose because you didn’t do your research.
THEY DON’T SET GOALS
Not setting goals means that you have nothing to work towards and nothing to keep you accountable for saving money and not spending on the things that you don’t need or can’t afford. You don’t need to set crazy goals, just have something to work towards, such as saving £200 a month, or paying off £50 on your credit card every month.
THEY DON’T CHECK THEIR ACCOUNT DAILY
Why would anybody not check their current account on a daily basis? The only way to make sure that you aren’t being overcharged for regular bills, and make sure there is no unauthorized payments being taken, is to check your balance everyday. This will also keep you out of your overdraft if you’re moving money between accounts – it is easy to miscalculate from time to time and not leave enough funds in the account to cover all your payments.
THEY DON’T SET UP AUTO PAYMENTS
We all have super busy lives and if you rely on remembering to pay your bills online or over the phone every month, then you are bound to forget at some point, which will likely cost you dearly in terms of bank charges or credit rating damage. Set up direct debits for your rent, mortgage, energy bills, phone contract, and even debt repayments and savings. That way, you will also be less tempted to spend the money you’re supposed to be saving on meaningless things.
THEY FALL FOR CREDIT CARDS WITH REWARDS
Credit card companies want you to overspend. They want you to rack up a balance and struggle to pay it off because the longer you have that balance, the longer they are charging you interest which is how they line their pockets.
When you go into a store, they might persuade you to sign up for a store credit card, with the incentive of 20% off your next purchase, or cashback for your first six months. It’s so easy to think that we are getting a brilliant offer because, you were going to buy things from the store anyway, right? Unfortunately what usually ends up happening is you overspend on the credit card, then take months, even years to pay it off, meanwhile, the store will charge you huge interest fees which amount to much more than that 20% discount that enticed you in the first place.
THEY THINK IT’S OK TO ‘TREAT’ THEMSELVES
If you are a hard worker and you have spent the last few months or years saving money or using extra money to pay off debt then it is okay to treat yourself. However, if you are still in the process of paying off debt, or you are trying to save for something big such as a house deposit or a new car, then treating yourself is just going to delay you in reaching that goal.
We now live in a world where credit and loans are so accessible, and while this is great in some ways, it has also created a society of people who aren’t good at saying “no”, and waiting until they have the money to buy something instead of reaching for credit.
THEY PRIORITIZE INSTANT GRATIFICATION OVER LONG TERM HAPPINESS
You can’t have everything in life. If you want to buy a nice house, then you are going to have to sacrifice the daily coffee for the next few years. If you want to pay off all your debt, then you aren’t going to be able to go on holiday this year.
It’s up to you which is more important: do you want to achieve that long term goal that is probably the thing that’s most important to you, or you do you want to give in to short term happiness by buying a new pair of jeans instead of putting that £50 into your savings account?
“Discipline is choosing between what you want now and what you want most.”Abraham Lincoln
THEY DON’T HAVE EMERGENCY SAVINGS
There are bound to be emergencies where you need access to money at short notice that you probably haven’t planned for. The boiler breaks, you get a flat tyre or you need to buy an expensive plane ticket to visit a family member. Whatever the case may be, you need to have some money set aside so these situations can be as stress-free as possible.
The most common recommendation is to have three months worth of living expenses set aside for a rainy day. Start small and build up your emergency fund slowly – even if you can only put £50 a month for the time being, it’s so much better than nothing and your future self will never thank you enough.
THEY DON’T CHECK THEIR CREDIT HISTORY
Checking your credit history is a crucial step in keeping your finances in order. Having access to your credit file is so important as it allows you to see any missed payments, how much of your available credit you are using and if there are any errors on your file that might be damaging your score, which you could have removed.
I like to use Experian to keep an eye on my credit file and this has been the best tool I have used to rebuild my credit score over the last few months.
Experian gives you free access to your score, and for £14.99 a month you can view your full credit report which gives you a detailed account of missed payments, defaults, credit utilization, searches, address history and CCJ’s if you have them. You can see all this information from the last six years and use this knowledge to repair your score if it’s already damaged or keep your score in the green if you are already there.
Experian also allows you to soft check credit applications before you apply, so that you don’t risk having any rejected searches on your file.
Applications for credit can be rejected for all sorts of reasons such as affordability, age and even the area in which you live – it’s not all about your current score. Therefore it’s important for everybody to run a soft check before making new applications as a rejection will be marked on your file.
To Finish Off…
I hope you enjoyed this read and it has sparked some inspiration to focus on your long term goals such as paying off debt or building your savings. If you have any tips for staying out of debt then I would love to hear these in the comments below and we can help as many readers as possible to reach financial freedom!