Paying off debt isn’t easy and if you are wondering why your debt just keeps increasing even though you are trying to pay it down hard. You have fallen into the debt hell and probably because of some bad financial habits. Once you get into debt hell it is really hard to come out of it.
7 Bad Financial Habits – preventing you from paying off debt
- Spending more money than you earn: This simply means you are making less money than what you are spending. This is one of the biggest reasons preventing you from paying off debt. There are only two ways to get out of this – Either reduce your expenses to fit in your income or increase your income to cover your expenses. Everyone wants to increase their income but it generally is more difficult than reducing your expenses. Track every single expense of yours and identify the things that can go.
- Spending money that you don’t’ have: I have come across so many people who take up big mortgages and auto loans in the anticipation of that promotion, big bonus check, inheritance. Don’t do it till you actually have the money that you are trying to spend. Simple rule if you can touch the money that you are paying it’s not yours.
- Not paying off the credit card(s) in full every month: Credit card fees and interests (vary from 14-36% or higher) are astronomically high and can rack up really fast. At times you might be tempted to only make the minimum payment but keep in mind that banks will charge interest over interest as well and your bill will keep going month after month. Best advice – make the credit card payments in full every month so you don’t incur fees or interest charges and still can collect those miles and reward points. If you are someone who has trouble making the full payment every month I think you are prone to error #1 or #1 or both. You should stop using the credit card right now and start paying cash.
- Carrying too much balance on high-interest credit cards: If you are like the majority you probably have some balance on your credit card, pay it as fast as you can and stop using credit cards today.
- Paying debts without thinking of the right order: Many people don’t realize that there is a right order to pay your debts. The rule is pretty simple – pay the highest interest debt first. So before you start thinking of paying off your student loans or mortgages pay off that balance on the credit card doesn’t matter how big or small it is.
- Failure to pay yourself first: I bet you have said or heard someone say I am trying to save money but I just can’t. Nothing is left at the end of the month. This is the wrong approach to saving money. The right way is to start paying off debt first, then pay yourself, spend what is remaining.
- Not checking your credit reports regularly: This might not sound like a bad habit but not knowing your credit can cost you a fortune when you apply for that mortgage or auto loan.
I hope this list of bad habits is helpful and will help you get back on the right path to financial freedom and becoming debt-free. I strongly believe paying off your debt is the first step towards FIRE but mind you all debt isn’t bad. Having good debt can accelerate your journey to FIRE and achieve financial freedom. If you are interested you can also read the book – How to be Debt Free
If you have any other habit that you would like to add to the list please share it in comments.