The definition of being stuck in debt frustration is to keep doing the same thing over and over, month after month, and somehow expect different results in the future – it won’t happen. You will have to do some different things to have different results.
After more than 20 years in banking, credit and finance management, I’ve literally watched tens of thousands of people make really bad borrowing choices. But they’re not done by choice. It happens when we don’t know the rules, tips and tricks to borrow smarter and don’t know the right questions to ask or the traps to avoid. It was the main drive in publishing the It’s Your Money book. There probably isn’t a page where you aren’t going to find one tip or another that’ll save you somewhere between a few hundred and a many thousands of dollars.
So I’ll keep sharing insights, tricks, tips, hurdles to watch. As well as ways of looking at credit & debt in some different ways, but here’s a short list of bad debt traps that can lead to real trouble. Wouldn’t it be great if none of these actually applied to you?
1. Hurray! – An increase in my credit card limit. More temptation to charge it up and less opportunity to pay off the monthly balance if you ever do charge anywhere near the limit.
2. Not having a low interest credit card when you KNOW you’re going to carry a balance each month. The rate you’re paying is likely twice as much as necessary.
3. Considering only the price of something today versus the total payback of what it will cost with all the interest and fees, when it’s finally paid for. Or even worse: making buying decisions only based on monthly payments and not the price or total cost.
4. Any financing longer than the reasonable or useful life of the purchase, such as putting your vacation on a two year loan or on your credit card at minimum payments for a decade or more.
5. Kidding yourself in the difference between gotta have and wanna have. There is a big difference between what you need to buy and what you’d really really like to have right now! Sales and good deals are like trains – there’ll be another one along any moment.
6. Debt without something tangible: A car in the driveway with payments is quite different than a credit card balance from years ago with nothing left to show for it.
7. Feeling fortunate just to be approved, instead of taking control, shopping around and asking questions to borrow your way and on your terms.
8. Not reducing your term on any borrowing by even just a few months when you can afford a slightly higher payment to make the pain of payments end that much quicker, and with a whole lot less interest.
9. Cash advances from credit cards. Drawing money from your credit card or line of credit is NOT income – it’s debt, and some the most expensive and painful debt you can possible have.
And one of the biggest debt traps we put ourselves in? Buying into the marketing mentality that you’re saving when you’re really spending, and saying to yourself: I can’t afford it right now, so I’ll just charge it.