Breaking The Debt Cycle: Avoiding Bad Spending Habits and Practices

If you’re in debt, you’re by no means alone. In fact, together, Americans owe nearly $2 trillion in consumer debt, according to the Federal Reserve. That’s over $18,000 per household, and is up 41% from 1998. But just because you’re caught in the debt cycle now doesn’t mean you have to stay stuck in it forever. Your spending habits have a huge impact on your amount of debt. And a few positive changes can make all the difference.

Pay with cash, not credit.

This sounds so simple, but how many of us do it? With so many "Zero down!" and "No payments for 18 months!" types of offers out there, it is very tempting to buy now and pay later. The problem is, you really do pay later - usually much more than you planned to. Hidden interest rates and fees can add up fast. And paying for things months or even years after you’ve bought them is a sure way to keep you in debt for longer than necessary.

Develop a budget to know what you can spend.

It’s not rocket science. Just make a list of all the expenditures you have each month, total them, and subtract the total from your monthly income. The amount you have left is your "disposable income," meaning the amount you have left over to meet all other obligations including savings. This should be your source for spending, not credit cards.

Pay yourself first.

Start a "rainy day" fund for unexpected emergencies. They always crop up: car repairs, doctor visits, appliance repair or replacement - and having an emergency fund in place will keep you from having to use credit.

Comparison shop.

Check prices before you buy. Use the Internet, sales circulars from your local paper, the telephone, or even your Aunt Edna. Try Web sites like www.mysimon.com or www.epinions.com to see what the item you want to buy is priced at through various retailers. You could save big!

Avoid cash advances.

Whether from a paycheck advance or your credit card company, this "easy money" comes at a huge cost — extremely high interest and fees. Stick to your budget and you’ll be able to skip them altogether.

Don’t buy on impulse or emotion.

Let’s face it, buying stuff is fun. And it can make us feel better, temporarily at least. But purchasing items you don’t really need or haven’t budgeted for can keep you in the debt trap forever. Treat yourself to the things you want, but do it the smart way: identify what you want in advance, save up for it, week by week, until you can really afford it.

Don’t waste money unnecessarily.

We all have them: expenditures we really shouldn’t have. They can be anything: magazine or newspaper subscriptions that we don’t read, late fees on videos or DVDs, unwatched cable channels, leaky faucets - anything that we could avoid paying for if we just did something about it. Like the ad says: Just do it. Take the videos back on time. Fix the running toilet. And save yourself some cash.

The bottom line? Don’t spend more. Spend smarter.