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Problem debt stems from bad habits
Many Americans have a problem with too much debt. Whether it comes from bad decisions, poor money management or just bad luck, the problem seems to be pervasive. Here are some sure fire tips for how to turn a good financial situation into a bad one. Sure, debt consolidation can fix it, but why go there?
Read on.
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Problem debt is avoidable. Just don’t do the things listed below.
The average household in the United States has credit card debt in five figures. That’s pretty astonishing; it’s hard to imagine how everyone could have that much debt. Stories of people who owe $50,000 in credit cards are not uncommon, and yet most of us couldn’t imagine how anyone could accumulate so much unsecured debt. But there it is and it must be repaid. With minimum credit card payments averaging about 4%, the payment on $50,000 in debt would be a whopping $2000 per month.
How do people get into this sort of financial trouble? Here are a few things that are guaranteed to get you in over your head:
- Making minimum payments - Credit card companies used to keep minimum payments to 2% of the balance, but the government urged them to increase them last year as the 2% figure often didn’t even cover the interest. Customers would pay only the minimum and the balance would actually go up. Still, even at the new 4% level, debts can take years to pay off. Sure, the low minimum makes it seem like charging a $5000 plasma TV won’t cost “that much”, but you’ll be paying for that TV long after you’ve thrown it away if you only pay the minimums. If that is all you can afford to pay, then you can’t afford the purchase.
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- Failing to recognize that credit is a loan - The best use of a credit card is to avoid having to pay cash. You don’t want to whip out $200 in cash when you eat a fancy meal and you don’t want to send a money order when you buy something from Amazon. But the purchase is a loan, and you should consider it as one that needs to be repaid promptly. Try asking yourself this - “Instead of a credit card, could I use my debit card instead?” If the answer is no, then you probably shouldn’t be buying.
- Don’t pay on time - Paying late hurts your credit score and your credit report. It will surely get a late fee tacked on to your bill, and these days, they run about $39. Worse, it can trigger a “default” interest rate, meaning that whatever interest rate you currently have could be replaced by a much higher one. How does 30% sound to you?
- Don’t pay at all - Some people run up so much debt that they can’t pay it back. So they stop paying. That’s the worst thing you can do. If you aren’t going to pay, at least consider filing for bankruptcy. Otherwise, your credit will be ruined, you won’t be able to get a good job, you might not be able to get a place to live, and you will have debt collection agencies hounding you twenty four hours a day.
It’s actually harder to get into debt trouble than it is to stay out of it. All you have to do to stay out of it is pay your bills on time and avoid buying things you know you cannot afford. How hard is that?
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