6 Ways You Could Land Yourself in DebtJanuary 02, 2017
Studies have shown that Americans have over $12 trillion in debt. Here are six ways you can avoid falling into the same trap.
Debt...It’s a scary word. When it comes to managing finances, it takes careful budgeting to avoid a mishap. There are several common habits that could do more harm than good when it comes to avoiding debt— here are a few recommendations to help you stay in the clear....
6 situations to avoid
- Using Credit Cards on Vacation - One major area where people get into the most trouble with credit cards is on vacation. Be careful not to use credit cards to “make up the difference” when you spend more than you expected on a vacation. Research has shown that 68% of people spend more than expected on vacation. Plan ahead, experts suggest at least one year in advance so you have time to save and adequately budget for the trip. Unplanned expenses while you are away are often times inevitable, but budgeting ahead of time and saving will help to minimize these additional expenses.
- Not budgeting - This is likely not a surprise for anyone, but a lack of proper budgeting can land you in a messy situation. Neglecting to track your spending will put you in a greater position to fall into debt. Studies have shown that about 2/3 of adults do not have a monthly budget. Apps such as Mint and Wally make it easier than ever to create manageable budgets so you’ll never be surprised. Our blog, “8 Tips to Improve Your Personal Finances” provides some valuable advice.
- Lack of communication with spouse - A joint budget can get complicated if only one person creates and/or follows the budget. This makes communication an essential part of joint budgeting. It’s important for the family to be on the same page where budgeting is concerned. Each spouse must be honest and open about their debts in order to create a plan to achieve the family goals. We have a great blog on this! Check out “Tying the Knot? 9 Financial Considerations”.
- Co-signing loans - Though you might want to help out a friend or family member in need, take serious precautions before binding yourself to someone else’s debt. Someone who doesn’t have good enough credit or income to qualify on his/her own might run into problems covering the monthly loan expenses. As a co-signor, this will lead to you being responsible for the monthly payments.
- Borrowing money to fund a business - Funding a small business is a tough job, but borrowing money might not be the best answer for your financial future. In the event your business fails, you’ll be without business income to pay back the money you borrowed. That’s not to say you should never take a loan to start a business, but it’s important to recognize that only about half of new businesses survive five years or more. Realistic projections and expectations are critical in determining how to fund a new business.
- Paying debts with credit - Even though it may sound like the least painful option when it comes to repaying debts, consolidating loans or using balance transfers can backfire on you. You may be in a situation where the balance transfer offers will run out and you’re stuck with the original debt at higher interest rates. You should take a careful look at the advantages and disadvantages for your specific situation before taking on new debt.
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