Many people that find themselves in debt seem to make some common financial mistakes that contribute to their debt problems. According to an article on MSN.com, there are ten bad financial habits that can lead to financial disaster:
- Misuse of balance transfers – If you aren’t going to stop charging on your cards, transferring balances to lower interest cards won’t get you out of debt in the long run.
- Disregarding your credit report because you think you can’t change it anyway – It is essential that you frequently check your credit report. Small errors made by your creditors could raise your interest rates, lower your credit score and affect your credit in the future.
- Failing to alert creditors about your financial hardship – Call your credit card company and explain the problems you are facing. Ask if they could temporarily lower your interest rate or extend your payment deadline.
- Thinking of “budgeting” as a dirty word – To find out what’s draining your wallet, keep track of where your money goes for an entire month. This will reveal whether you’re spending too much on expenses you could trim, such as restaurant outings and gas.
- Applying for retail credit cards to make use of discounts – If you must charge your purchase you are much better off using your general-purpose credit card. Chances are that the store credit card you want to use has an introductory low interest rate.
- Procrastinating on starting or building an emergency fund – Maintain an emergency fund of at least three to six months’ worth of living expenses, and keep your insurance policies up to date, because you never know what may happen.
- Paying bills in no particular order – Always pay your living expenses first, such as rent or mortgage and groceries. If you pay off your credit cards first, then you might not be able to pay your rent in full.
- Charging purchases instead of paying in cash or with a debit card – Make a habit of paying anything under $50 with cash or a debit card linked to your checking account.
- Paying late – Besides wasting money, late payments can throw your account into default status and triple your interest rate. Additionally, if you default on one card, your other creditors may be able to charge you a default interest as well.
- Paying only the minimum payment only – Paying the minimum is better than paying nothing, but it doesn’t do much to pay off most balances and forces you to keep paying interest on insignificant items.
If you can’t afford to pay your minimum payments anymore, bankruptcy may be the answer. I offer a free consultation to all new clients, so you have nothing to lose and a fresh start to gain. Take control of your life back. Contact me today.