11 Ways You Don’t Even Realize You’re Keeping Yourself in Debt (and How To Stop)
A certain amount of debt is just a way of American life, from using credit cards to loans for things like cars, college and homes. However, some forms of debt may be unnecessary.
Learning to identify the habits that are keeping you in debt can help you get out and stay out or at least stay on top of managing it.
Experts explain 11 ways you may not even realize you’re keeping yourself in debt and how to stop.
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Overuse of Buy-Now-Pay-Later (BNPL) Services
BNPL platforms may seem superior to credit cards. However, they make it easy for customers to overspend without realizing it, according to Michael Hershfield, CEO and founder of Accrue Savings.
“While convenient, it’s worth noting that most BNPL platforms inadvertently encourage overspending, leading to an accumulation of debt due to missed payments and exorbitant late fees,” Hershfield said.
This debt is also compounded as one-third of consumers use credit cards to pay for their BNPL purchases, he said.
“In a time where we crave instant gratification, it’s easy to opt into unnecessary purchases. To avoid this, I recommend pulling together a wish list before embarking on your shopping trip, to help ensure to stay within your budget.”
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Relying On Credit Cards
Probably the next most common way that people are keeping themselves in debt is by using credit cards for everyday expenses, according to Taylor Kovar, certified financial planner (CFP), founder and CEO at 11 Financial. This can lead to overspending and accumulating high-interest debt.
“Instead, switch to using a debit card or cash for daily transactions to help control spending and avoid accumulating debt,” Kovar said.
Buying What You Can’t Afford
Credit cards are often an “excuse” to buy things you’re not sure you can afford, said Mark Henry, founder and CEO of Alloy Wealth Management.
“Credit cards are a great way to build credit and get rewards for spending, but be sure only to use them when you are positive you can cover the entire balance by your billing date,” Henry said.
“If it doesn’t fit your spending plan, don’t use a credit card to assume you’ll find a way to pay for it later.”
Paying Only The Minimum
Many people also find themselves in the bad habit of only paying the minimum balance on their credit cards each month, which can prolong debt repayment and result in substantial interest charges, Kovar said.
“Make it a priority to pay off credit card balances in full each month to avoid accumulating debt and save on interest fees.”
Not Budgeting
Another way that you can get into financial trouble is through not budgeting, Kovar said.
“Without a clear budget in place, it’s easy to overspend and live beyond your means. Take the time to create a realistic budget that outlines your income, expenses and savings goals.”
Tracking your spending can help identify areas where you can cut back and allocate more funds towards debt repayment.
Impulse Purchases
Making impulsive purchases without considering their long-term impact can lead to unnecessary debt as well, Kovar said.
“Before making a purchase, take a moment to evaluate whether it aligns with your financial goals and if it’s worth the potential debt it may incur. Consider implementing a 24-hour waiting period for non-essential purchases to curb impulse buying.”
No Emergency Fund
Putting money aside for savings may seem impossible thanks to the high cost of living, but those who don’t have an emergency fund will find themselves stuck in debt that becomes increasingly hard to break, said consumer finance expert Andrea Woroch.
“That’s because you need cash in the event of an emergency or unexpected bill. If you don’t have adequate savings, you will need to rely on a high-interest credit card to get through a tough financial time and this is what creates a vicious debt cycle,” Woroch said.
The goal is three to six months’ worth of living expenses saved and even more if you’re self-employed, she said.
“Open a high-yield online savings account such as Bread Savings to boost your savings faster thanks to a higher interest rate offered at 5.15% annual percentage yield,” she said.
Not Replenishing Your Emergency Fund
If you do have an emergency fund don’t be afraid to dip into it, Henry said. “The whole purpose of that money is to be confident you can cover costs if you have car trouble, medical bills or lose your job.”
However, if you don’t replenish those funds as soon as possible, you could end up in debt the next time an unexpected expense pops up.
Lifestyle Creep
Debt can also accumulate subtly through what is known as “lifestyle creep,” Woroch said. “People often overlook the fact that they increase their spending and take on bigger expenses and bigger purchases when their income increases.”
Even consumers making more than six figures can find themselves living paycheck to paycheck in this scenario, keeping you in debt regardless of how much you make, she said.
Setting a budget and tracking expenses is necessary to ensure you aren’t spending more than you make, Woroch said.
Also, Henry pointed out that making more money doesn’t make you immune to unexpected expenses.
“If you upgrade your whole life when you get a raise before you bump up savings and investing goals, you could end up in unnecessary debt. Aim for a zero-sum budget, where every dollar you earn is assigned a job,” Henry said.
Throwing Away Spoiled Groceries
Food waste is another huge budget waste, Woroch said, explaining that research shows Americans throw away over $1,600 a year of spoiled produce.
“You can nip food waste by using a meal plan to curb excessive grocery purchases and ensure you only buy what you will cook and eat,” Worch said.
“You can save more on groceries by sticking with store brands, looking for manager markdowns which are fresh foods nearing their expiration date and using reward apps like Fetch, which give you cash back on grocery purchases when you upload a picture of your receipt.”
Keeping Up With the Joneses
If your income rises to a new status, it might be tempting to spend your money to join higher-earning friends or colleagues at their lifestyle level. But that’s a mistake, Henry said.
“If you’re always trying to keep up with trends or go out with friends every weekend, you can easily spend more than you realize.”
While some debt is unavoidable, these habits can keep you from a mountain of debt you won’t be able to climb out from under.
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This article originally appeared on GOBankingRates.com: 11 Ways You Don’t Even Realize You’re Keeping Yourself in Debt (and How To Stop)
