It is nearly impossible to avoid getting into debt. People typically have to borrow money to go to college, buy a house and make another huge purchase. However, there are money habits that can cause your debt to spiral out of control. You will need to avoid making the following mistakes.
Not Having an Emergency Fund
The purpose of having an emergency fund is to prepare for unexpected expenses. Experts recommend that you have at least three months of expenses in your emergency fund. However, if you have at least six months of expenses, then that is even better. If you do not have an emergency fund, then you may have to take out a loan to pay for your expenses.Read More »
Not Having a Budget
Not having a budget is one of the biggest financial mistakes that you can make. It will be a lot easier for you to start an emergency fund if you know how much money you have going in and coming out each month. Setting a budget will also prevent you from spending more money than you earn.
There are budgeting apps that you can use. You may also want to talk to a financial advisor if you need help setting a budget.
Charging More on Your Credit Card Than You Can Afford
A credit card is a convenient way for you to make payments. However, you do not want to charge more money than you can afford. It is best to keep your credit card balance below 30 percent of the total limit. For example, if the limit is $3,000, then the limit should not exceed $1,000.
Credit card debt can easily spiral out of control because credit card companies add interest to the balance. If you only make the minimum payments each month, then it can take you several years to get out of debt. There are a few things that you can do if you are already struggling with credit card debt.
You can transfer your debt to another credit card that has a 0 percent introductory interest rate. You can also take out a personal loan. Personal loans are great for debt consolidation because they allow you to pay off multiple debts at one time. You will only have to make one payment each month. Furthermore, you can save a lot of money in interest.
Not Having Enough Insurance
Auto insurance, health insurance and car insurance are necessities. You also need life insurance if you have a family to support. Even if you have an emergency fund, it may not be able to cover the out-of-pocket expenses. Proper insurance can help you save a lot of money.
One of the main reasons that people file for bankruptcy is because they have medical bills that they cannot pay. Health insurance may prevent you from going bankrupt.
Getting Behind on Your Payments
It is important for you to make all of your payments on time. If you miss one payment, then you can quickly fall into the debt trap. Most bill collectors charge late fees, which will cost you a lot more money in the long run.
If you have missed a payment, then you should make them up as soon as you can. You will also need to reach out to the bill collectors and ask if you can get the late fees waived. After you have made up the payments, you should stick to your budget to avoid missing one again.
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