6 Bad Money Habits to Avoid

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People who don’t handle money well have some shared traits that should be avoided if you want to achieve financial freedom. In this article, we’ll explore 6 of the most common habits of these individuals. We’ll also go over some of the smartest ways to get out of debt if you’re currently drowning in unpaid bills, such as looking for the best credit cards for balance transfers. After all, paying off debt is one of the best financial moves you can make. Keep reading to learn more.

1. Common habits of people who don’t handle money well

Creating and following a budget enables you to make smart financial decisions, such as paying off your debt. While budgeting may be less fun than spending, it’s a crucial step to setting yourself up for financial success.

2. They buy what they can’t afford

We get it. Buying that new watch or trendy shoes can feel really good. But regularly purchasing discretionary items that don’t fit your budget can quickly send your finances spiraling. It’s ok to treat yourself once in a while, but it shouldn’t become a regular practice.

3. They take out loans without considering the interest

Certain loans, such as payday loans or cash advances, come with exorbitantly high-interest rates that can trap you in a cycle of debt. For example, the average interest rate on a payday loan is 391%. If you’re not careful about which loans you take out, you could wind up getting progressively deeper in debt from the interest owed. Also, make sure your state allows payday loans. They are illegal in several states.

4. They carry credit card balances

You should always try to pay your credit card balance in full each month. Carrying a balance can cause interest payments to quickly rise, as well as have a negative effect on your credit score.

5. They don’t create emergency funds

An emergency fund is approximately three to six months’ worth (though a year is preferred) of living expenses that you save up to help buffer against the unexpected, such as medical bills. Not building emergency savings can lead to financial struggles if you’re hit with unpredictable expenses.

6. They don’t set financial goals

It can be difficult to create a budget and set money aside if you don’t have any goals that you’re working toward. Setting financial goals can motivate you to stick with healthy financial habits and avoid spending temptations.

Smart ways to pay off debt

If you’re in debt, consider the following techniques to help pay it off:

Balance transfer

A balance transfer is when you use a new credit card to pay off existing debt, often with a lower interest rate. Balance transfers can help simplify paying your bills each month (you’ll only have one balance to pay off instead of multiple balances) and can help you pay off debt faster, which can save you money on interest.

Snowball method

With the debt snowball method, you’ll pay off your debt in order of smallest to largest balance, regardless of the interest rate. You’ll make minimum payments on all your debts but put extra toward the smallest one. Once you’ve paid it off, you’ll focus on the second smallest balance. The snowball method is ideal for people who need motivation to tackle their debt and quick wins to build momentum.

Avalanche method

With the debt avalanche method, you’ll pay off your debt in order of highest to lowest interest rates. You’ll make minimum monthly payments on all your debts but put extra money toward the debt with the highest interest rate. Once that’s paid off, you’ll move on to putting extra toward the debt with the second-highest interest rate, and so on. The avalanche method can help you save money by paying less interest over time.

Personal loan

You can use a personal loan to help pay off debt. Note that while different lenders have different eligibility requirements, a higher credit score will most likely score you a lower interest rate.

Debt management plan

A debt management plan (DMP) is when you work with a credit counseling agency to help consolidate your payments, cut interest rates, and extend payoff timelines.

There are many different ways you can pay off debt. Pick the method you know you’ll be most likely to stick with and start living debt-free today.