Living in a first-world country has a lot of perks and being able to buy things you can’t immediately afford is a big one. Taking out loans and acquiring a bit of debt is an essential part of life. In an ideal world, people would use credit for major, life-altering purchases like a house or a car and then pay off the debt within the next few years. However, this idealistic scenario hangs on the assumption that people are incredibly responsible and will be able to create an effective budget and stick to it, even if it means not being able to afford all the pretty, shiny things that they want. There are people out there who just can’t seem to avoid debt; they seem almost drawn to it. If you want to avoid becoming one of them, you need to understand what it is that causes problems with credit.

1. People whose buying decisions are influenced by others

The type of person that is most likely to accumulate debt is one who is unsatisfied with his life and always looks to others with envy.  These people falsely assume that if they buy the same things and live the same lifestyle as someone they admire, they will somehow be respected and achieve a sense of fulfillment. Just because the Johnsons from down the street have a Mercedes parked in their driveway doesn’t mean that you have to go out and get one, nor do you need some of the high-tech gadgetry and jewelry they flaunt at local parties – particularly if all these things are well above your pay grade. In order to avoid becoming this type of person you’ll need to sit down with your significant other or family members and have constructive discussion about what you can do to feel comfortable in your own skin and how much you can actually afford to spend on various items. There are a number of self-help books and motivational videos out there that will help you come to terms with your finances.  You need to realize that respect and happiness aren’t synonymous with owning a bunch of high-end equipment and expensive clothes.

2. People who are impulsive buyers

Excited Shopping Woman

Some people just don’t seem to have any self-control whatsoever. They will walk around the mall like  little squirrels gathering nuts for the winter, turning their heads at every “Sale” sign and stopping at every shop window. It doesn’t matter whether they need an item or not, they will buy a new blender, rowing machine, tablet or purse, simply for the thrill of it. Now, there is nothing wrong with going on an endorphin-inducing shopping spree every now and again, but impulsive buyers will accumulate large amounts of debt by constantly buying impractical items they don’t really have a use for, or even useful items that are way out of their price range. Knowing your priorities and being realistic can help you avoid using credit to make impulsive purchases. When you get an urge to buy something, take a moment to breathe and remind yourself that your finances don’t allow that type of purchase right now. Write some of those expensive, pretty things down in your wish list and quench your thirst for shopping by buying some inexpensive trinkets.  As long as you buy something new you will get that rush of excitement you usually get from shopping; just keep it cheap and simple.

3. People who take random advice from others

While your family and friends can sometimes be a true source of inspiration and offer a helping hand and shoulder to cry on, not every piece of advice they give will be particularly sound. Remember, these people are not, for the most part, experts on business and finance, and there is a good chance that they have heard a few sentences on TV or read something online a few years back and now feel qualified to give out all kinds of advice on how to avoid debt or pay it off. If you want advice on developing a good budget and getting your finances in check you need to consult professionals. When a friend or family member gives you some financial advice, just nod politely and thank them, then double check it when you get home and see if what they suggest really works.

4. People who don’t have clear goals

It’s a sad sight to see, but there are plenty of people out there in their early thirties acting like teenagers and focusing on game consoles, video games and beer rather than investing in their home, their children’s clothes or paying off their student loans. When you are that selfish, irresponsible and have no real ambition and clear goals it’s easy to lose sight of what’s important and continue living in an imaginary world where things like financial stability, family, responsibilities and hard-work are disregarded in favor of  trivial things. Having some kind of idea of where you want your life to go is important if you don’t want to become this type of person. Setting goals for yourself isn’t really difficult – you need one or two major goals that you want to achieve in  5-6 years and few smaller goals that can be achieved within the next year. The goals can be as simple getting in shape or paying off your car by next year, but all of this should tie in to your long-term goal, e.g. getting a bigger apartment so you can move in with your partner.

5. People who don’t have a savings account

A savings account with a couple of thousand dollars on it can serve as a safety net. If an unexpected event occurs and you don’t have any money stashed away, it can end up ruining your efforts to pay of your existing debt or cause you to fall further into debt. People who have at least a thousand dollars saved for rainy days can deal with all sorts of problems and suffer much less stress than those getting by paycheck-to-paycheck. Be sure to set aside a bit of money each month – even $100 or $200 every month can be enough. Change your thinking about windfall money; your tax refund, a bonus, or a generous gift should be seen as an opportunity to build your savings, not to buy some big-ticket item you’ve been wishing for.

6. People who don’t know how to create an effective budget

Girl writting in notebook

Writing things down on paper has an incredible way of enlightening you as to where you are going wrong. You can justify all kinds of bad decisions in your head, form a distorted picture of reality and even lie to yourself about how much you spend on things that are not essential, but when the cold facts are sitting in front of you, in black and white, it’s much easier to create a plan and make the right budget cuts. Write down how much you earn – coupled with how much other members of the household earn – and make a list of your monthly expenses. You need to divide the expenses into several categories, but the most important classification is necessary, fixed expenses (car payments, rent, bills, etc.) vs. flexible expenses (food, clothing, gas, hygiene products, etc.) vs. optional expenses (video games, new hat, blender, etc.). Savings can be made on flexible expenses (avoiding overpriced name brands, buying food in bulk, using coupons and looking for good deals) while a lot of optional expenses can be cut out of the budget altogether or put on hold for a couple of months until your finances start shaping up.

7. People who use credit for everything

It is quite reasonable to use a credit card in some situations and take out loans when a major investment is required, but there are people who’ll make 3-5 small store runs during the day and just keep putting things on their credit cards. When you buy with cash you have a very good idea of just how much you are spending.  When using a credit card it’s easy to get carried away and forget that all those little purchases add up to quite a bit. If you want to stay debt free, consider using cash for smaller purchases or creating a list of things you need for that day and buying them all in one go. Weekly shopping runs are a great way to save money because you buy in bulk and avoid unplanned, spur-of-the-moment purchases like random snacks and drinks. Having a list prepared ahead of time will help you to get everything you need in that one trip, and will also help curtail impulse buying.

These seven types of people can’t seem to avoid debt for many different reasons. If you want to learn how to keep yourself from accumulating more and more debt and wish to pay off your existing debt,  you will need to identify the mistakes these people make, understand why they lead to more debt, and try to avoid making the same mistakes.

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