American consumer debt is at an all-time high. According to the New York Fed’s Consumer Credit Panel, total household debt reached $16.5 trillion in the third quarter of 2022.
Is there a way to pay off your debt once and for all? Absolutely, but it requires avoiding bad money habits that can drive you deeper into debt.
Here are 12 of those dangerous habits and what to do instead.
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1. Spend money to keep up with others
The peer pressure is enormous. You may not feel a direct command to keep up with other people in your social circle, but it can get sneaky. If one of your friends is buying a new car, you might be tempted to buy one too.
Break this habit by realizing that you bear all the consequences of your spending. In other words, it’s not your friends who have to pay off the debt. This job is yours and yours alone. Better avoid it entirely by living within your means.
2. Don’t automate saving
For most people it is available if it is in their primary checking account. If you spend all your money, you are guaranteed to be living paycheck to paycheck.
Instead of continuing the cycle, break it by adjusting your pay distribution. You can send a fixed amount to your main checking account and a percentage to savings. This will ensure that you consistently build an emergency fund and avoid further debt.
Payday loans are often sought out in urgent situations, but they’re a bad deal: they can have interest rates in excess of 600 percent!
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3. No consistent budget strategy
Not having a budget strategy is a dangerous habit. You are unaware of how much you take in, how much you spend, or how much you need for life’s expected and unexpected expenses.
Once you have a budget, things that used to be “emergencies,” like car maintenance and property taxes, simply become part of the budget.
4. Not tracking expenses
Expenses tend to creep in, making it easy to end up with “more moth than money,” as the old saying goes.
It’s a dangerous money habit because if you don’t have a clue about your spending, you can’t really plan for unexpected events. This puts you in a difficult position where you may have to take out expensive loans or buy out credit cards, pushing you further into debt.
Pro Tip: Many of the best budgeting apps automatically analyze your expenses from a linked bank account to keep you on track of your spending.
5. Eat out every week
Checking out the best restaurants in your city is fun, but it can add up very quickly. Even fast food runs are starting to stack up.
Ordering every week is money you can’t use beyond a full tummy for the evening.
A better approach is to work away and get into your budget, but pack lunches for work and cook most of your meals at home.
6. Payment of the minimum amount for credit cards and loans
Paying the minimum credit card balance is a surefire way to stay in debt longer. That’s because the minimum balance on credit cards is used primarily for interest and very little of the balance.
Pro Tip: By paying more, a larger portion of your payment goes toward the original balance rather than just the interest. You can also save your debt by switching to a low-interest credit card.
7. Buy more house than you can afford
What you get approved for on a home loan and what you can actually comfortably afford each month are often two different numbers.
As a general rule, your mortgage shouldn’t exceed 28% of your take-home salary from an affordability perspective.
In some markets, this can mean a lot less house than you expected. But having the cash flow to handle repairs, saving for unexpected expenses, and still planning for retirement is far more important than having the biggest house on the block.
8. Shopping for each individual sale
Unfortunately, the science of retail is designed to take as much of your money as possible. In fact, shopping at every single sale is a dangerous habit that can land you even deeper in debt because it encourages purchases.
This means that not every deal is really a deal. Even if it’s a 75% discount or sale, the costs can still add up. Stay at home and do not add any items to your online shopping cart.
9. Spending too much money on a car
Just as you spend money to keep up with others, you can also overspend on a car. It is an acquisition that is guaranteed to decrease in value and that requires maintenance and upkeep.
Pro Tip: Buy a car that is reliable and affordable when the total cost of ownership is taken into account. Try these tricks to save money on car insurance.
10. Ignore car maintenance until it’s too late
That check engine light won’t go out just because you put a little tape over it. Unfortunately, when money is tight, it is difficult to find space for car repairs. That’s why it’s so important to have an emergency fund.
While some small businesses are now offering third-party financing, interest rates are not very good, making debt reduction even more difficult.
Pro Tip: Set aside money for repairs year-round. Even if you don’t need many repairs, the fund can grow enough to allow you to either repair your vehicle or buy a new one without the hassle.
11. Not monitoring your creditworthiness
Not checking your credit score leaves you vulnerable to fraud or even just misreported information.
Traditionally, the big three credit bureaus allowed one free credit report each year, but currently consumers can view their credit reports weekly. This is a temporary benefit due to the ongoing COVID-19 pandemic.
This habit can get you even deeper into debt since your credit score directly affects the interest rates you get. The worse the score, the more you’re paying for credit cards, loans, and even housing.
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12. Let the bar eat your money
The bar can be an expensive spot, with the average bill ranging from $80 to $100 for just four drinks.
Add in the parking fee or cab ride, along with any other bar stops you’ll be making, and spending a night on the town can leave you more in debt than you might expect.
Entertainment is one of the biggest spending categories that can get out of control, but unlike rent or utilities, you can control it.
Good money habits open big doors. If you try to set bigger goals, such as Buying a house, for example, or having better vacations, it all starts with building good money habits and avoiding dangerous things.
Of course, that’s not the only piece of the puzzle to solve. After all, you need to take care of your income, including a raise, promotion, or even a side hustle.
Start saving and investing money, and you’ll soon find that you’ll have enough breathing room to grow your bank account, too.
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This article 12 Dangerous Habits That Can Drive You Deeper Into Debt originally appeared on FinanceBuzz.