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How You Easily Get Into Debt

How You Easily Get Into Debt

Here are nine ways that you can get into debt. It can easily happen to anyone and with the average U.S. household credit card debt at $15,252 there is a fair chance that it’s something that you are familiar with. This article describes the top ways people get themselves into debt. By being aware of the pitfalls hopefully you may be able to avoid all of them and stay debt free.

1. Getting a credit card or 2, or 3 or 10

In 2008, credit card companies were falling over themselves to extend your line of credit. Even now, they entice you with low initial interest rate offers, air miles, cash back, etc. But if you don’t clear your balance then you get into debt. With credit limits increasing as you near them, it becomes easier to get into debt further and much harder to escape.

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2. Not saving money

Spending all of your money every month means that you will have no emergency fund if something goes wrong. When these bad things happen then out comes the flexible friend and the more you get into debt. Alternatively, if you want to splash out on something big and you don’t have money set aside, it is easy to fall into the temptation of using credit.

3. Not setting a budget

By not setting a budget you will never know if you have sufficient money each month to make ends meet. By not setting a budget you may well go into the red at the end of each month and have to pay those annoying fees. If teamed with a savings plan, setting a budget can help you out of sticky situations and make sure you have sufficient funds should you wish to treat yourself.

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4. Not sticking to a budget

If you set a budget but don’t stick to it then you will end up in debt – or further in debt. In a way this is worse than not setting a budget as you’ve done a lot of the ground work already. Stick to your budget and every month you will be able to pat yourself on the back (and see your money grow).

5. Spending money not yet earned

If you receive a bonus from your employer it is very tempting to spend it before it has landed. This usually means having to borrow. Rather than paying off what you’ve borrowed you will find something else “more important” and your bonus gets spent twice. Don’t count your chickens, wait until you have the money in your hand to avoid this easy pitfall.

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6. Getting into debt by studying

Student debts are very large financial commitments that are gathered in the hope that one day you will have a big enough salary to clear them. While studying is recommended, being aware of the debt accumulated has a potential impact on your future options. Not taking your studies seriously can also be a massive waste of money as not only could this affect your chances later on in life but doing this will burden you with painful debt that will take years (if not decades) to clear.

7. Trying to win big

Spending money to make money is the mantra. But if you spend on credit big hoping to make it big then don’t be surprised if you fail big too – and get into debt of course.

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8. Not paying attention when juggling credit cards

Juggling credit card debt to get the best rate is an excellent idea if you are looking to pay them off. Be fully aware of when the low interest rate expires so that you can either make sure that the debt is cleared before that date or swap it to another low-interest card. Having access to a longer line of credit can be tempting and having multiple credit cards can take work. So if you don’t take care of them you will get into debt just because it is available to you.

9. If only I had…

I think we’ve all said, “If only I had X, then my life would be complete / life would be easier / I’d be happier etc.” You use credit to get the magic ingredient and it fails to live up to its promise in the long run, so X becomes Y and so on…

Featured photo credit: http://www.lendingmemo.com via flickr.com

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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