Did you know that smart spenders can also end up in credit card debt? Surprising but true. If you miss out on one important aspect, it can lead to your financial demise. Of course, being a smart spender, it will not be as bad as those who have been irresponsible with their money. Smart spenders would have an advantage in knowing when to use cash vs credit. Purchases are carefully studied and weighed out before heading out the cashier. This is an attitude that does not happen overnight. It takes practice and perseverance as one tries to stay away from impulse buying.
But despite that, they are still in danger of falling into the credit card pit.
According to EconomicCollapseNews.com, there are about 5 things that has been keeping most of the consumers in debt. On top of that list is when spending overtakes the income. At face value, this would not be possible if we are dealing with cash. But in a credit market, we oftentimes overlook that we are already charging more than what we afford monthly.
And then there are those unforeseen circumstances that comes in second. These could mean sudden hospitalization or even loss of job. There are life events that we do not see coming but directly affects our finance nonetheless. Third would be wrong financial decisions that we make. This could refer to diving in with eyes closed in a business venture that we do not know anything about. It could also be putting more of our cash in inventory we cannot liquidate in time.
Fourth is just plain financial ignorance. Not having enough knowledge to deal with income, credit and payments can keep a person in debt. The fifth point would be other small things that keeps our feet in debt like excessive living, wanting to show off with the newest gadget and others.
5 financial mistakes that can end up in credit card debt
As most of the people would think, smart spenders will never have a problem with credit card debt. These are the type of buyers that carefully read the label and buys strictly within a budget. But Demos.org recently conducted a survey that would prove that even smart spenders can find themselves in credit card debt.
At least, this is true if they are guilty of the following mistakes.
- Not pursuing a higher education. The survey showed that college graduates exhibit better financial management as they carry less credit card debt than their high school graduate counterparts. According to the Demos study, high school graduates maintain 22% more credit card debt that college graduates. There are a lot of variables on why college graduates are better in handling credit. It could be because of classes they took in college about financial management. It could also be the fact that college students are able to limit their credit expenses because they are forced to creatively look for ways to earn income while still in college. Whatever it is, getting a college education shows better chances of being able to deal with credit card debt. You may think that your lack of finances kept you from pursuing this education but you have to know that some people successfully graduated without being in debt. They worked on part time jobs and lived a frugal life just to get themselves through college.
- Abstaining from an insurance coverage. The study mentioned that families where a member is not covered with insurance in the most recent 3 years has a 20% higher chance of having credit card debt. This is compared to a household where all members are insured. This is for the simple fact that with the lack of insurance, credit cards are being used to pay for medical expenses. Smart spenders can also be affected with this fact. Insurance coverage helps you save money so figure out how you can include this in your budget. It is better to be prepared than to end up in debt when an emergency strikes.
- Unexpected family member. Any child is a gift but unplanned pregnancies can setback the family budget. It can force the couple to use credit cards to pay for expenses such as check-ups, vitamins, delivery and even childproofing the house. These stages in life are best enjoyed when planned. You get to prepare emotionally and financially as well. Not to mention the fact that childcare is starting to be more expensive than college. Think about it and make sure that you are prepared for the expenses that comes with raising a child.
- Unemployment. Nobody wants to be unemployed but you need to realize that this is something that can happen anytime. You have no control over it if you are employed. Having a steady job is important to be able to pay off debt and have the confidence in charging expenses against credit. But when your unemployed status goes long enough, you will find yourself desperately relying on your cards to purchase basic necessities. That can quickly set you back in your finances. The survey shows that 2 months of unemployment in a span of three years increases the probability of the household having credit card debt by 14%. The logic to this is pretty simple. Lack of income does not stop the necessities from coming. Food and water will not wait for your job. It will not keep utility companies from sending the bill. In the absence of a steady stream of income, most people would have to charge payments over to credit card to get by. This is where everything starts to pile up because as you charge due to unemployment, payment will be impossible because of the same reason. Interests and fees will start to creep up and snowball into your credit card debt.
- Insufficient savings. It is a common mistake that people believe their savings is different and will not be affected by credit card debt. It is indeed different and totally separate from credit card payment, your savings still feels the ripple effect of having credit card debt. In fact, the survey revealed that the absence of credit debt in a household allows them to put aside a savings amount that is almost thrice the amount than those families carrying credit card payables. Not only that, if you were prepared with your savings, you do not have to worry about the other mistakes written previously. You would have been able to survive a job loss or even a medical emergency.
Make sure that these mistakes will be corrected and removed from your financial practices. Despite being a smart spender and making the right choices about your money, these 5 can seriously screw up your finances.
How to keep your credit card balance from accumulating
A recent study by Gallup.com reveals that more and more Americans are spending less in the past months. The survey shows that this is represented by about 37% which is an increase from the last study. The remaining 30% disclosed that they are spending more than what they used to. The remaining respondents indicated that there was no change in their spending habits.
This study shows us that we are slowly but surely slipping back into our old ways. Even if your income is increasing, you need to think twice if purchases will do you good. If not, you may want to abstain from going through with the purchase. Apart from spending less, below are other ways to prevent credit card balance from blowing up.
- Budget your credit card expenses. It is a great habit to get used to budgeting not only the actual money that comes in but even the credit card use. It is easy to forego this unit in budgeting because it is not actual hard cash that is coming out. Most consumers just depend on the monthly bill to remind them of the expenses. It would be best to list down all the things that you need to buy and see if using a credit card would be the best route. If it is, ensure that you have a plan of action in terms of payment. Know how much it will cost, how much the monthly payment will be if you cannot pay at once, how much the interest is and most importantly, can you afford it?
- Own cards that compliment your spending lifestyle. Carrying the right credit card that complements your lifestyle will not only help you stay away from debt. It can even reward you with the things that matter to you.
- Never make a credit card purchase if you have a remaining balance. The golden rule in using your credit card is to pay off the balance at once. This is to avoid penalties, interest and other late charges from charging up with your principal payment. In light of this, it is best to hold off another charged expense when there is still a balance in your card. Pay it off first before making another purchase.
- Pay within the grace period. It is important to always know the details of your credit card. From the credit limit to the interest rates up to the payment period. The payment and grace period are important dates because after this point, your principal payment can balloon up because you might be sending late payments.
Follow all of these tips so you can stay away from too much credit card debt.