Advertising
Advertising

11 Reasons Why You Stay In Debt

11 Reasons Why You Stay In Debt

According to the Federal Reserve, 43% of Americans exceed their income with their spending habits. This means that 43% of people are going further and further into debt each year and racking up interest charges at an alarming rate. They might as well be burning their money.

Many people never even plan on paying all of that money back, citing bankruptcy as their way out.

Here are 11 ways you are staying in debt, and what do do about it.

1. Your expenses are too high

This one is obvious. If you have backed yourself into a corner by amassing a huge house payment, huge car payments, large insurance premiums, and other gigantic fixed costs, then you are never going to have any money to pay down your debt.

If you want to pay your debt, you must reduce your expenses. Get a used car. Downsize to a smaller house. Shop around for insurance. Cancel recurring subscriptions. Question everything. Do anything you can to lower your expenses so you can begin to put that saved money towards your debt.

2. You have no additional income

If you only have one source of income, odds are that you base all of your expenses on that.

Advertising

The secret to being able to save money and pay down debt is doing things on the side that you enjoy that will also make you extra money. Pick up freelance work that can make you an extra few hundred a month.

You can then leverage this money to build a side business, which can turn into an enjoyable way to get extra cash flow to begin paying down your debt.

3. You have no picture of your money

Do you know where your money goes each month? If you look at your bank account and just sit there wondering, “What did I spend all of that on?” then you have an issue.

Sign up for an automated financial tracking site, like Mint.com, to get a better idea of what you’re spending where without having to do all of the manual work of balancing your income and expenses. This can help you perform a detailed analysis of where your money goes, and make changes based on the results.

4. You don’t take advantage of technology

The technology that exists today is incredible. You can literally pay your debt on autopilot. All it takes is a few minutes to set up an automated transaction to your creditors each month. You’ll find ways to adjust.

Couple that with a little bit of extra money on the side towards your debt, and you’ll have it paid off in no time.

Advertising

5. You use your time poorly

How many hours a week do you work? 40? Do you do anything after work to make extra money? Are you furthering your education to increase your worth? Are you networking to increase your level of influence?

Expenses, if left alone, will almost always increase over time. If you’re not using your time wisely, you’ll never increase your ability to earn more to keep up with those expenses, keeping you at the same level of income and plunging you further into debt as your expenses increase over time.

Always be improving your ability to earn more.

6. You run a balance on your credit cards

Credit card debt is the absolute worst type of debt you can have, because the interest rates are so high. You can literally rack up tens of thousands of dollars in interest alone in just a few years. Yet so many people just view them as a way to pay for things without actually having to pay for them.

But the fact is, that minimum payment is going to grow and grow over time as you spend more, and you eventually won’t be able to get any more credit. At that point, you’re going to have to pay before you can buy anything else. That’s no way to live.

Use credit cards wisely. Only put items on them that you can pay off each month. The day you start to run a balance on your credit card is the day you start racking up hundreds of dollars in interest, and it’s hard to escape from the high rates of credit cards.

Advertising

7. You worry about everyone else

The quickest way to get into debt and stay there is to start worrying about what everyone else thinks of you. The fact is, not everyone makes the same amount of money, but everyone likes to try to act like they do.

Stop worrying about what the image your car, house, clothes, and whatever else says about you and just live the life you are able to without going into debt. At the end of the day, those things are just liabilities on your balance sheet, nothing more.

8. You don’t have a spending plan

Money is made to be spent, but if you do not have a plan for what you are allowed to spend it on, then you’re going to be throwing it around everywhere.

Sit down and think about what brings you the most joy to spend your money on, and allow yourself a guilt-free spending fund each month. Spend it on one or two things that bring you joy and cut it off there.

9. You afford things

“Affording” things is a very quick way to get into debt. Because when you afford things, you are only thinking about how you can leverage all you own to buy them. Unless it’s your house, only buy things you can pay off completely in less than two years.

Otherwise you’ll spend your whole life with monthly payments towards things that are probably worth less than you owe on them.

Advertising

10. You buy too many little things

10 bucks here, 20 bucks there, $8.50 there—it all adds up. It’s very easy to tell yourself that “It’s only $10. Go ahead and spend it.” But the problem with that is when you keep saying that day after day, eventually you’ve spent $300 on nothing but a bunch of little trinkets, snacks, and things you ultimately don’t need that will just end up in a yard sale.

Resist the urge to spend money on little things. You’ll be a lot happier with one high-quality, large purchase.

11. Your money is not working for you

With a boatload of debt, you’ll never be able to invest in anything.

At some point in your life, your money must make money for you, not the other way around. Instead of spending all of your money, save some of it to invest in assets that will make you money over time.

Learn about high yield savings accounts, stocks, real estate (that you quickly profit from), building businesses, and other forms of wealth creation. Eventually you’ll get to the point where all you have to do to collect money is sit back and watch the birds.

More by this author

Are You Making This Major Daily To-Do List Mistake? How to Forever Cure to Your Lack of Motivation unlock hidden hours 3 Simple Hacks to Unlock 5 Hidden Hours Each Week staying in debt 11 Reasons Why You Stay In Debt Why Your Silly Bucket List is Holding You Back

Trending in Money

1 How Being Smart With Your Money Leads to Financial Success 2 17 Practical Money Skills that Will Set You Up for Early Retirement 3 25 Things to Sell to Make Extra Money Easily 4 How to Pay off Debt Fast Using the Stack Method (A Step-By-Step Guide) 5 30 Fun Things To Do With Your Friends Without Spending Much

Read Next

Advertising
Advertising

Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

Advertising

So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

Advertising

Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

Advertising

You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

Advertising

Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

Read Next